Spotting the Breakdown: How Relative Weakness in XLF Warned of a Sell-Off

 

In the top pane I’m looking at a 5-minute chart of XLF, the financial sector ETF. Below that, I’ve got a 5-minute chart of the SPY, which tracks the S&P 500. Around 1:00 PM, something important caught my eye: while the SPY was making a new intraday high, the XLF was actually forming a lower high. That divergence immediately signaled relative weakness in the financials. Sure enough, shortly after the SPY began to roll over, the XLF didn’t just dip—it fell hard, essentially collapsing in price compared to the broader market. This setup is a classic example of how relative weakness can offer a powerful early warning. The financials weren’t keeping up with the broader market strength, and once momentum shifted, they became the first to break down. Watching sector performance in real time, especially during key turning points in the market, gave me an edge. It’s this kind of relative analysis that helps me anticipate sector-specific sell-offs before they become obvious on the broader tape.