Financial Sector: Potential Trend Change Looms with Double Top

Key Points

• The financial sector, previously up over 11% YTD, faces a critical juncture with a recent 2% pullback suggesting a potential double top and trend change.
• XLF is near key support levels, with the 20- and 50-day SMAs converging. A break below $41, despite a near 10% YTD gain, could confirm a trend shift.
• Key holdings—Berkshire Hathaway, JPMorgan Chase, and Visa—are crucial to watch. Berkshire and JPM are strong YTD, while Visa's recent consolidation hints at a potential downside if support fails.

Previously an outperformer with a year-to-date gain of over 11%, the financial sector now finds itself at a critical juncture after giving back some of its gains. Just six trading days ago, the Financial Select Sector SPDR ETF NYSE: XLF made a new high but has since pulled back over 2%. From a technical analysis perspective, this recent action suggests the makings of a double top. This classic bearish pattern could signal a significant trend change and potential downside for the sector.

Currently trading near its uptrend support and at the critical juncture where the 20- and 50-day Simple Moving Averages (SMA) converge, the XLF is poised for a decisive move. If the ETF breaks below the key support zone at $41, it could confirm the trend shift and signal further downside. Despite this precarious position, the sector remains up nearly 10% year-to-date and boasts a remarkable 30% gain over the past year. To better understand the sector's future direction, examining its top holdings and their current standings is crucial.

Top Holdings in the Financial Sector ETF

The financial ETF provides exposure to significant players in the US financials segment, focusing on large banks through a cap-weighted, S&P 500-only portfolio while avoiding small-cap companies. Here’s a closer look at the ETF’s top three holdings:

Berkshire Hathaway Inc.

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