What the Breakdown in XLF Breadth Means - and Does Not Mean

Key points

• The action within the financial sector can often have a ripple effect across the broader market
• The XLF Breadth 50-day Avg indicator recently dropped all the way to zero; This action has tended to presage impressive rebounds in the broader market and some specific sectors - but not always immediately
• This signal definitely falls under the category of "weight-of-the-evidence" and should not be considered an outright "buy" signal on its own

All S&P 500 Financial Sector stocks fell below their 50-day moving average

In a very rare instance, every constituent stock in the S&P 500 Financials Sector Index was recently trading below its 50-day moving average. This obviously highlights a period of significant price weakness in that sector. The obvious question, of course, is "what happens from here?" To answer this question, we first look at the past.

The chart below highlights all dates when the XLF Breadth 50-day Avg indicator was equal to zero, including all overlapping dates. The most recent signal occurred on March 27th.