— Jack (@alphacharts365) January 24, 2020
Today’s Chart of the Day was shared on Twitter by Jack (@alphacharts365). It’s a line chart of the Financial Sector ETF, $XLF, going back to 2006. Jack points out that $XLF is struggling to break above a key resistance level. This level is important because it represents the 2007 highs prior to the Great Financial Crisis. This chart serves as an excellent example of how supply and demand dynamics create levels of support and resistance. Imagine buying $XLF at the peak in 2007, around $30. Over the next year and a half, you would’ve lost over 80% of your investment. Flash forward ten years to January 2018, $XLF is finally back to $30, and you’re finally back to break-even. After experiencing an 80% drawdown and a decade of praying that price gets back to $30, there’s a natural tendency to sell. As a result, you can see that $XLF fell over 20% when price first tested $30 in January 2018. Clearly, $XLF still has some overhead supply that buyers will need to absorb at this level.