“As such, the extremely thin supply of put open interest on XLF implies that money managers have very little in the way of bank stock exposure to hedge — and the stagnation in put open interest of late indicates that they don’t appear to be accumulating new shares at the moment,” according to Schaeffer’s.

XLF is down about 12% year-to-date and is lower by almost 3% in the second quarter. Unfortunately, investors have not been buying the dip in the financial services sector.

“With all of this in mind, keep a close eye on that XLF triangle pattern. Investors have already opted against buying the pullback to the benchmark 200-day moving average — and an unwillingness to defend the lower rail of this triangle, which lies along the same lines as XLF’s October-November 2017 highs, would signal a strong likelihood of greater losses for the bank sector,” according to Schaeffer’s.

For more information on the banking sector, visit our financial category.