🚨Opening Playbook is live at 10 a.m. ET🚨
We’re jumping on for a quick session today to take a look at the broad market. Join Graham and me as we sketch out what things are looking like for this week, this month, and the entire second half of the year [tap to join us for Opening Playbook]
Something weird is happening with the Financial Sector (XLF).
And when I say weird, I mean historically unusual.
I’ve been watching XLF fail to make new highs alongside the S&P 500 (SPY) during this rally, and honestly, there hasn’t been an all-time high market in the last 20 years where XLF hasn’t also made an all-time high with SPY.
Until now.
Look, SPY ripped past all-time highs by a significant margin from the April low, but XLF never even touched an all-time high during that entire move. It’s been sitting on the sidelines while everything else partied.
Normally, there’s a predictable ebb and flow every quarter where money rotates into XLF ahead of earnings, then flows out into Technology Sector (XLK) and then into the rest of the market.
That routine has played out like clockwork for years, which makes the current divergence stand out even more. But here’s where it gets interesting…
Recently, we’re seeing some unusual action. On days with heavy selling pressure in XLK, XLF has been showing strength — it gained 1.5% on a day when XLK was down more than 3%.
And when you look closely, this uptick lines up with a pattern that often shows up in leveraged plays like Direxion Daily Financial Bull 3X Shares (FAS), where XLF tends to heat up in the final week or two before earnings as money starts shifting in ahead of the results.
So the question becomes: Is this a real rotation or just noise before earnings season wipes it all out?
The Catch-Up Trade That Might Not Last
Here’s the thing about XLF right now — it’s building some momentum and looking pretty good as a lag trade or catch-up trade.
Up until this week, XLF was even further behind pace, so seeing it catch up a little bit is notable. It’s the kind of move that makes you wonder if institutional money is finally rotating into the sector after sitting out for months.
But I’m not convinced this holds up indefinitely.
If we continue getting selling pressure across the broader market, it’s going to be hard for XLF to hold up even if it is technically a catch-up play.
It can’t fight a deeper market correction — if everything gets pulled down, XLF will likely dip with it even if it recovers faster afterward.
And that brings us to the real test: Earnings season.
Earnings Will Tell the Story
The critical question I’m watching is whether XLF can maintain momentum through earnings season if early results are good and continue attracting institutional money — or whether the bullish move starts to fade as soon as earnings begin coming out.
Because here’s the reality — XLF is already behind. It’s been lagging this entire rally. And XLK has been the sector giving us the clearest directional signals for months now.
When XLK weakens, it tends to ripple across everything else, including sectors that look strong on the surface.
So if earnings come out and disappoint — or even if they’re just fine but not spectacular — that catch-up trade could evaporate pretty quickly.
On the other hand, if XLF starts delivering solid earnings and institutional money actually begins rotating in, we could see a sustained move higher that fills the gap between where it is now and where the rest of the market has been trading.
But that’s a big if.
For now, I’m watching closely. The momentum is there, the rotation looks real in the short term and the seasonal earnings pattern is lining up. Whether it sticks around is another question entirely.
If you’re trading this, just know that XLF is playing a different game than the rest of the market right now — and that game could end abruptly if selling pressure picks up or earnings disappoint.
Now don’t forget to join us at 10 a.m. ET weekdays for Opening Playbook, and at 3:30 p.m. ET Closing Playbook!
Nate Tucci
Tucci Trades
You can also follow along and join the conversation for real-time analysis, trade ideas, market insights and more in my official Telegram channel!
Important Note: No one from the New Money Crew team or Tucci Trades will ever contact you directly on Telegram.
*This is for informational and educational purposes only. There is inherent risk in trading, so trade at your own risk.Â
