A key financial ETF is now so depressed that it may be ready to bounce vs. the broad market
Like the XLF Financials ETF, the iShares U.S. Broker-Dealers and Securities Exchanges ETF (IAI) has come under pressure in recent weeks, falling back to its November low. The obvious challenge now is whether the price can hold and bounce from this key support zone. Tuesday, it did exactly that — a constructive first step, but we are not out of the woods yet. A potential bearish inverse cup-and-handle pattern has taken shape directly on top of that November support zone, and tested again earlier this month. This area also sits near the 38.2% retracement of the entire April 2025 to January 2026 advance. Holding this zone would keep the ETF relatively close to the July–November trading range from last year. However, renewed downside pressure from here would push the ETF into a very light support area, which would carry obvious downside implications. IAI broker dealers: long term So the question becomes: What can we expect if IAI fails to hold support and the air pocket mentioned above begins to come into play? To frame that risk, we can zoom out to a logarithmic monthly chart going back to 2012. The ETF recently has been trading near the upper boundary of a long-term rising channel, an area where prior advances have often stalled before rolling over. The concern would be if this latest pullback represents the early stages of a larger drawdown that eventually brings IAI back toward the lower channel boundary. Based on current levels, that would imply a move toward roughly the 120–130 zone, a meaningful decline. Even if that scenario unfolds, it would likely develop over time, with technical warning signs appearing along the way. A short-term bearish pattern confirmation would be one such signal. However, history shows that pullbacks from the upper boundary have rarely resulted in outright collapses. Several prior instances show the ETF pulling back before stabilizing and eventually moving higher again, often after spending time closer to the middle of the channel rather than the top. With IAI now drifting toward that middle region, it would not be surprising to see the long-term uptrend remain intact, but with price consolidating more toward the center of the channel instead of hugging the upper boundary. IAI vs. SPX IAI’s selloff so far in 2026 has led to clear underperformance versus the S & P 500, pushing the IAI/SPX relative ratio into oversold territory, a rare occurrence over the past few years. The blue vertical lines highlight prior instances when the relative line bottomed, each occurring alongside an oversold or near-oversold reading. If this behavior repeats, it could present another opportunity for a relative mean-reversion move in IAI versus the broader index. The bottom line is that IAI has become sufficiently short-term depressed to warrant expectations for a bounce on both an absolute and relative basis versus the broader market. The next step in making Tuesday’s rebound more meaningful is to see upside follow-through, followed by the development of a bullish pattern. That process will take time to unfold, but it is worth monitoring given how important IAI’s components are to Financials and the S & P 500 overall. — Frank Cappelleri Founder: https://cappthesis.com DISCLOSURES: None. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, or its parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
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