This series analyzes investors’ sentiments toward the financial sector in the major regions around the world: the United States, Europe, China, Japan, and the Emerging Market economies. We will study these factors using technical indicators such as moving averages, Relative Strength Index, and fund flows. For an in-depth, fundamental look at the financial sector, please visit Market Realist’s Financials page.
The December Federal Open Market Committee (or FOMC) meeting brought increased expectations of a rate hike, which led to increased inflows to the financial sector.
On December 11, the Financial Select Sector SPDR ETF (XLF) closed at $23.45. This is 2.1%, 2.5%, and 3.8% below its 100-day, 50-day, and 20-day moving averages, respectively.
In the chart above, we can see XLF has broken below its 20-day moving average on December 8 and its 100-day and 50-day moving averages on December 9. Technical analysts view such crossovers as bearish signs.
Relative Strength Index
Relative Strength Index is a technical indicator that is used to study overbought and oversold levels of a stock. Generally, if the RSI is above 70, it indicates the stock is overbought. An RSI figure below 30 suggests that a stock has been oversold.
In the chart above, we can see that the 14-day RSI for XLF is 37.1, suggesting it is nearing oversold levels but is not yet considered to be undervalued. Given the low RSI, investors may consider it a value buy on expectations of a rate hike.
Overview of XLF
The Financial Select Sector SPDR ETF (XLF) ETF attracts the most attention among financial ETFs in the US, with 87% of the fund comprising large-cap stocks. With a market capitalization of $19.2 billion as of December 11, it is the largest financial ETF.
XLF is also the most liquid financial ETF, with $41 billion in shares trading every day. The largest holdings of this ETF are Wells Fargo (WFC), Bank of New York Mellon (BK), JPMorgan Chase (JPM), and Bank of America (BAC).
Read on to study the fund flows to the XLF ETF.