Financial stocks have been burning so far this year.
The XLF financial ETF rose more than 17% over that period, roughly double the S&P 500. The shockwave of the Archegos margin news last week could not deter the rise in the group.
Matt Maley, chief market strategist at Miller Tabak, said the shares could succumb to a short-term weakness after the rally.
“They bought a lot, a lot a few weeks ago,” Maley told CNBC’s ‘Trading Nation’ on Tuesday. “You look at its RSI chart, the relative strength index, on a weekly basis. It’s still pretty overbought. The last three times it’s overbought this, it took a long time before it really took off from the condition and jumped back.”
The XLF ETF is trading at 72 on its RSI, an overbought condition it has not seen since January 2018. Any reading above 70 indicates that an asset has been overbought.
Maley nevertheless said the long-term setup looks incredibly strong for the finances.
“The 50-week moving average comes very close to the 200-week moving average. In other words, it comes very close to a golden cross every week. Gold crosses tend to be bullish on the charts daily, but if you look at it “weekly, it’s even more so. In reality, we have not seen any of the crosses since 2012,” Maley said.
“That time we also saw a big rally, and when the golden cross took place, it expanded to a much further rally over the next few years,” Maley added.
A golden cross is formed when a 50-period moving average moves above the 200-period. This is a bullish formation indicating an accelerated upside trend.
From June 2012 to a peak in August 2015, the XLF has almost doubled its price. Maley said he wants to buy the group on weakness while watching whether a golden cross can be seen in the charts.
Steve Chiavarone, portfolio manager at Federated Hermes, is also betting on long-term financial strength. He said rising interest rates and a reopening economy should cause even more profits.
“If you have something as depressing as some of the cyclical, and the financial, you can move a large percentage and still not be back where you were before that kind of crisis event, and I think that’s the scenario for here,” said Chiavarone during the same interview.
After peaking in February 2020, the XLF fell to 44% in March.
“There are a lot of stimuli coming through the system, which are more likely to come, and this is putting upward pressure on rates. We are seeing the 10-year level reach a 2% level this year, which we believe “A very good further reinforcement is. of the yield curve … I think the basic background for finance remains really strong. We will use any weakness to increase our weight in the area,” Chiavarone said.
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