Wednesday, February 24, 2010

Low Beta Reversal

The VIX/VXX did finally show their true color Tuesday and it was green. The BZQ2/10 Prognosticator double negative signal at Monday's close did provide a nice heads up for Tuesday's action although the signals were in conflict at Tuesday's close. These fades typically take at least 3 days to resolve so I'm not feeling bullish at the moment and will just stand back until the signals fall back into sync.

Meanwhile, I took a closer look at the XLF components in an attempt to get a clearer understanding of the recent XLF run up. Ten components account for 55% of XLF's net asset value with BAC, JPM and WFC sharing a similar prominent weighting. While WFC and JPM have been slightly bullish, BAC has been on a run for the past week, supporting my inkling that BAC has been the driver for XLF's strength. This looks like another 3 Finger Lead study waiting to happen . . just another item on my ever-expanding "to do" list.

A MLR Rotator sort of the top 10 XLF components (and XLF) delivers USB in the #1 rank. The corresponding daily chart doesn't look bullish however, with all the technicals in all 3 panels currently downslope. While miracles do happen, this doesn't look like an attractive risk/reward situation, and I'll sit out the USB Long for this round.

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