Of the top 10 holdings in XLF, only
has a current price pattern that is in an uptrend (including through this morning's big market rally). The remaining nine top holdings represent around 46% of XLF's total weighting. The fund itself has been down five of the last seven trading days, with the down days having significantly higher volume than the up days -- another sign of distribution for XLF.
There are a few ways to profit from a potential downturn in financials. It all depends on how aggressive you want to be. More conservative investors should use the
ProShares Short Financials
. At the time of publication, this fund was trading at around $34.85. If it clears resistance at $35.60, it should go to $38 and then potentially to $40 per share. Place a stop at $33.95 for this trade, which boasts a handsome three-to-one risk-to-reward ratio.
More aggressive traders could invest in the
ProShares UltraShort Financials
. The main difference is leverage, as SKF returns twice the inverse of the daily performance of the Dow Jones U.S. Financial Index. This morning, SKF was trading at $56.41. If yesterday's high of $56.94 is taken out, then $67.60 is a target for SKF, followed by $77. Place a stop at $53.85, risking only 5% from current levels.
Traders looking for even more of a pop can use the 300% daily inverse leveraged
Direxion Daily Financial Bear 3X Shares
. Be careful with this one. FAZ was trading this morning at $39.33. Yesterday's high of $41.99 coincides with the 50-day moving average. Should FAZ clear that level, it would have a price target of $46.45 and then $52. Use a stop at $37 for FAZ.