Financial ETF Is Attempting a Historic Breakout as Interest Rates Rise

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The Financial ETF Is Attempting a Historic Breakout as Interest Rates Rise

The SPDR Financial ETF quietly did something historic last week: It closed at the highest price ever.

This is a big deal because XLF has been trapped at resistance running back to 2007 (before the subprime crisis). It was trying to break the old highs around $31 exactly a year ago, then lost 44 percent of its value when the pandemic hit.

XLF jumped early this year to test those levels, retreated to its 50-day moving average and quickly rebounded. Traders will now be watching to see if prices can escape from the tight consolidation pattern between about $31 and $31.60.

Fundamentals could be more positive than a year ago because the yield curve has steepened dramatically. (The difference between 2-year and 10-year Treasuries has increased from about 20 basis points in February 2020 to about 110 basis points.)

The higher long-term rates result from the stronger economic backdrop (also displayed by oil prices). That healthier economy offers two other potential benefits to banks: more lending and fewer loan defaults.

For more, please click here to view the related idea and chart analysis on TradingView.

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David Russell is VP of Market Intelligence at TradeStation Group. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.