XLF has found itself in a critical juncture. I have given plenty of reason for a top in the last post. Now I will give the critical levels that would confirm a top in XLF is complete.

I stated in the last update a strong case for a top using Elliott Wave analysis. I also stated that there was an incomplete A-B-C wave correction. Now I want to make a case that the A-B-C wave correction is complete and a major move down in wave three is expected in the next couple of weeks.

Like in the last update, I am using a 60-minute chart to show more clearly the Elliott Wave count. You can see a clear five waves down from the 10/14/09 top labeled with circled numbers. This completes wave I on 11/2/09 with a red square around it. Since then, we can count a 3-3-5 wave pattern indicating an Elliott Wave Flat pattern. This is shown on the chart as wave a, b, and c. As you can see, wave c is a five wave impulsive pattern. In Elliott Wave analysis, wave c is always a five-wave impulse wave in flats and zig-zags.

This completes wave II on 11/11/09 shown on the chart with a red square around it. Since 11/11/09, I can count a complete five waves down. If not complete, it will be with one more push early Monday below the 11/13/09 low.

How could I be wrong? The price action from the 10/14/09 high could be a larger corrective pattern, not a change in trend. What I have labeled as wave I with a square could be wave A and wave II with a square could be wave B. Wave C would be incomplete. Even in this scenario, wave C should fall to at least the 13.00 level. That is where wave C will equal wave A and there is an unfilled gap from 8/3/09 at that level.

One more thing to mention is the Fibonacci retracement levels from the 10/14/09 high to the 11/2/09 low. Wave II hit a roadblock at the 61.8% retracement level. The candlestick patterns on the 120-minute chart also indicate a wave II top.

Expect XLF to fall from current levels to the 13.00 price level as the minimum target. The critical resistance level that must hold for my count to be correct is the wave II high of 11/11/09. You can short XLF with a stop loss at the 11/11/09 high or you can buy SKF as the Ultra Short Financial ProShares ETF. SKF price action and wave pattern is the inverse of what I just posted.

ccwells7 attached the following image(s):

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Be a smart trader!

ccwells7
http://www.etf-technical-analysis.com

I stated in the last update a strong case for a top using Elliott Wave analysis. I also stated that there was an incomplete A-B-C wave correction. Now I want to make a case that the A-B-C wave correction is complete and a major move down in wave three is expected in the next couple of weeks.

Like in the last update, I am using a 60-minute chart to show more clearly the Elliott Wave count. You can see a clear five waves down from the 10/14/09 top labeled with circled numbers. This completes wave I on 11/2/09 with a red square around it. Since then, we can count a 3-3-5 wave pattern indicating an Elliott Wave Flat pattern. This is shown on the chart as wave a, b, and c. As you can see, wave c is a five wave impulsive pattern. In Elliott Wave analysis, wave c is always a five-wave impulse wave in flats and zig-zags.

This completes wave II on 11/11/09 shown on the chart with a red square around it. Since 11/11/09, I can count a complete five waves down. If not complete, it will be with one more push early Monday below the 11/13/09 low.

How could I be wrong? The price action from the 10/14/09 high could be a larger corrective pattern, not a change in trend. What I have labeled as wave I with a square could be wave A and wave II with a square could be wave B. Wave C would be incomplete. Even in this scenario, wave C should fall to at least the 13.00 level. That is where wave C will equal wave A and there is an unfilled gap from 8/3/09 at that level.

One more thing to mention is the Fibonacci retracement levels from the 10/14/09 high to the 11/2/09 low. Wave II hit a roadblock at the 61.8% retracement level. The candlestick patterns on the 120-minute chart also indicate a wave II top.

ccwells7 attached the following image(s):

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Be a smart trader!

ccwells7
http://www.etf-technical-analysis.com

The price has had a huge decline just in the last two days. That is not a good sign if you are needing the price to move higher.

You should be holding good profits if you had acted on my recommendation. However, it may bounce up early next week before moving lower.

There is good support at the 14.00 and 13.65 levels. The next support below that is the 13.10 level.

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Be a smart trader!

ccwells7
http://www.etf-technical-analysis.com

Davecash777,

The S&P dropped over 40 points in three days. It does not have much further to go before dropping through the congestion caused by the price action during November and December. The S&P closed near the lows of the last two trading days in a row. Volume was much higher Friday.

The market may bounce at the open Monday, but it will not hang around the plus side for long. I use Elliott Wave analysis and I do not see a pause at these levels. There is horizontal support at the 1035 level that may break the fall for a little while. After that, the next major level will be the 880 level. There are other minor support levels in between that level and the current price. These will be temporary hesitations in the decline below the March lows.

This is not a buy on the dip type of market but rather a sell on the bounce type market. Consider buying Short or Ultra Short ETFs.

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Be a smart trader!

ccwells7
http://www.etf-technical-analysis.com

2/19/10

XLF has had a good bounce as have the Major Indexes. However, I must remind you that the Financial Sector did not make new highs in January as the overall market did. XLF actually made lower highs and lows. This is a major divergence and not a good sign for the future price of financial sector.

The bounce from the 2/5/10 low is corrective. The price should fall to lower lows in the upcoming week or two. The bounce has retraced 50% of the decline from the 1/7/10 high. The price could bounce to the 61.8% level; However, I doubt it. If the price makes the 61.8% retracement, I believe it will not stop until it gets to the 78.6% level.

The price currently sits at stiff resistance formed by the congestion area formed by the previous fourth wave. The Elliott Wave count also indicates that the pattern is complete or nearly so. A drop below the 2/10/10 high is the first warning and a drop below the 2/12/10 low will be the second warning. A fall below the 2/5/10 low is confirmation.

The Federal Reserve has raised the Discount Rate. This confirms the technical analysis up to this point. The market makers already were betting on this. This will affect many investments from the U.S. Dollar and everything else tied to it. You need to be careful with any investment betting on higher prices. Do not get caught with your pants down!

Be a smart trader!

Craig Wells

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Be a smart trader!

ccwells7
http://www.etf-technical-analysis.com