A "Must Watch" Chart for America

These days, investment optimists have to take any good news they can get. And right now, they're getting a tiny bit of good news from the XLF.

Regular readers know the big U.S. financial stock fund XLF is a permanent fixture on our "watch list." With large weightings in JPMorgan, Wells Fargo, Citigroup, Goldman Sachs, and American Express, this fund represents America's financial backbone. These are the companies that rise and fall with our ability to make money, save money, start new businesses, repay debts, and just generally "get along."

After trading in a sideways pattern for more than a year, XLF suffered a huge selloff in August and September. This selloff took XLF from $15 per share to $11.28 (a 25% loss). Shares then staged a natural "relief rally" to $13.50… and sold off again.

But as you can see from today's chart, the recent selloff ended around $12 per share. This is what traders call a "double bottom." It's where sellers attempt to push a beaten-down asset even lower... and get overwhelmed by value-focused buyers. Mind you, this bullish action is no cause for dancing in the streets... but if XLF can hold above the $11-$12 level, it's a good sign for America in general... a ray of light for the optimists. On the other hand, a break of this level means ugly things ahead.