As financials look to end worst streak ever, some see more gains ahead

The XLF ETF, which tracks the financial sector, jumped higher Thursday ahead of the Fed’s annual CCAR stress test results. If the gains hold, the move will break a record 13-day losing streak for financials, but according to Dan Nathan of RiskReversal.com, there could be even more gains ahead.

On Wednesday, the XLF saw a surge in trading activity, with call options doubling that of puts. Within the activity was a purchase of 21,000 July 27 calls for 41 cents per contract. This is a bullish bet that the financials ETF will be above $27.41, or up about 3 percent from its current levels, by July expiration.

Financials are one of the worst-performing sectors this quarter and have fallen nearly 5 percent year to date. The group has been weighed down by the underperformance of big banks like J.P. Morgan, Bank of America, Wells Fargo and Citigroup — which make up more than 32 percent of the ETF’s holdings.

Still, Nathan believes the biggest catalyst for the group will come next month as many of the large banks prepare to report earnings.

“So in my eye you get a move in the XLF between now and July 20 close [of] about 3.5 percent in either direction,” he said Thursday on CNBC’s “Fast Money.”

Shares of the XLF are up more than 8 percent in the last 12 months and were trading higher Thursday afternoon at around $26.65.

Chart: Used with permission of Bloomberg Finance L.P.

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