A key financial ETF is now so depressed that it may be ready to bounce vs. the broad market
Like theXLF Financials ETF, the iShares U.S. Broker-Dealers and Securities Exchanges ETF (IAI) has come under pressure in recent weeks, falling back to itsNovember low. The obvious challenge now is whether the price canhold and bounce from this key support zone. Tuesday, it did exactly that — aconstructive first step, but we arenot out of the woods yet. A potentialbearish inverse cup-and-handle patternhas taken shapedirectly on top of thatNovembersupport zone, and tested again earlier this month. This area also sits near the38.2% retracementof the entire April 2025 to January 2026 advance. Holding this zone would keep the ETF relatively close to theJuly–November trading rangefrom last year. However, renewed downside pressure from here would push the ETF into avery light support area,which would carry obviousdownside implications. IAI broker dealers: long term So the question becomes: What can we expect ifIAI fails to hold supportand theair pocketmentioned above begins to come into play? To frame that risk, we can zoom out to alogarithmic monthly chart going back to 2012. The ETF recently has been trading near theupper 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 theearly stages of a larger drawdownthat eventually brings IAI back toward thelower channel boundary. Based on current levels, that would imply a move toward roughly the120–130 zone, a meaningful decline. Even if that scenario unfolds, it would likely develop over time, withtechnical warning signs appearing along the way. A short-termbearish pattern confirmationwould be one such signal. However, history shows that pullbacks from the upper boundary haverarely 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 themiddle of the channelrather than the top. With IAI now drifting toward that middle region, it would not be surprising to see thelong-term uptrend remain intact, but with price consolidating more toward thecenter of the channelinstead of hugging the upper boundary. IAI vs. SPX IAI’sselloff so far in 2026has led to clearunderperformance versus the S & P 500, pushing theIAI/SPX relative ratio intooversold territory, a rare occurrence over the past few years. The blue vertical lines highlight prior instances when the relative line bottomed, each occurring alongside anoversold or near-oversold reading. If this behavior repeats, it could present another opportunity for arelative mean-reversion movein IAI versus the broader index. The bottom line is thatIAI has become sufficiently short-term depressedto warrant expectations for abounce on both an absolute and relative basisversus the broader market. The next step in making Tuesday’s rebound more meaningful is to seeupside follow-through, followed by the development of abullish pattern. That process will take time to unfold, but it is worth monitoring given howimportant 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.
