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This week marks the beginning of a critical stretch for the Financial sector (XLF) — and it’s one I’ve been watching closely.
Earnings season is underway with JPMorgan Chase (JPM), Wells Fargo (WFC), Bank of America (BAC), Morgan Stanley (MS) and BlackRock (BLK) already reporting quarterly results.
I’ll be honest…
I don’t know what to expect from bank earnings. These stocks typically aren’t huge movers after their reports. Citigroup (C), for example, fell only 1% after reporting — fairly typical behavior for this group.
BAC, however, was down nearly 9% at one point yesterday after reporting.
But many bank charts look strong right now. That could create a compelling opportunity once we get through this earnings window.
The Technical Picture That Has My Attention
I like XLF right now. It tracks the broader Financial sector, and its chart shows an interesting setup developing.
XLF has established some solid trends and touched its 200-day moving average — often a level where buyers step in. With banks reporting earnings, you may not want to rush in immediately. But the setup is there.
If the markets get back to gaining steam after Wednesday’s bad CPI data sent everything downward, I wouldn’t be surprised to see XLF return to its all-time highs soon. That would represent a roughly 10% move in the underlying fund over a relatively short period.
Still, it’s important to watch market breadth — a measure of how healthy participation is across the market. An index can rise even when only a handful of leading stocks are doing the work.
A stronger signal would be broad participation across banks, insurers and other financial companies rather than gains concentrated in a few large names.
What Needs to Go Right
The real question is whether these banks can emerge from earnings season healthy. This isn’t about predicting blowout results or guessing which bank will beat estimates. If they report decent numbers and remain stable, the chart structure supports a move higher.
Economic data matters too. Inflation readings like the CPI can shift interest-rate expectations, as we saw yesterday, Treasury yields and the market’s view of bank profitability. Wednesday’s hot inflation reading definitely complicates this setup.
That broader backdrop deserves caution. At times, it feels like we’re pulling bricks out of the bottom while the tower keeps going higher. The market may continue climbing, but weakening support beneath the surface can make that advance increasingly fragile.
Financials are probably my favorite sector overall, partly because of the individual names I like within the group. But I’m not suggesting you rush in while banks are reporting.
Watch the earnings results, economic data and breadth across the sector. If XLF holds up and participation expands, the reward-to-risk profile could become more favorable — and that 10% move back to all-time highs could happen faster than many investors expect.
Graham Lindman
Graham Lindman Trading
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