Is Banking Tanking?: Prophetic Words From Dec 4, 2006
When I wrote the article "Is Banking Tanking?" in early December last year, the banking sector was rallying like every other sector. Well, almost. The only cloud on the horizon: it had gone from a leading sector to a laggard sector since the June 2006 low.
Two and a half months after my article, on February 20, 2007, the Banking Sector (S&P Banking Sector Index, BIX) finally topped out. I guess most of the readers of that original article had forgotten it by then.
But fast-forward to today and banking really is tanking!
When I wrote that original article there was no sign of banking tanking. That was then, but now? Yes banking really is tanking. In fact, about 10 trading days ago it began a near-vertical slide south.
I've analyzed the BIX chart and data, and believe it could slide another 20% yet, and ultimately bottom out around 290. That would be 30% below the February high of 414.84. The current near-vertical plunge could take BIX all the way to 290 in a few crazy days of panic. It COULD, but I doubt it will.
What's much more likely is a traditional A-B-C decline in a double zigzag form.
BIX should be very near finished the zig-zag plunge to point A of the larger zig-zag pattern. A zig-zag rally should unfold next to point B (likely to be near 390). This should be followed by the next zig-zag plummet south to the final point C of the larger zig-zag pattern, at near 290.
BIX is approaching a strong region of support, and I expect it to form a trough within the next week in the 345 - 355 range, then rally strongly in a zig-zag to near 390.
This coming bounce could last a few months, or even stretch out to the end of the year.
Expect to see more fireworks after the bounce ends, including a spreading of the near-vertical drop characteristics to the major US indexes.
But that may be 2008. Right now I'm anticipating what may be the last good rally in US markets for a long while. But what if the near-vertical plunge in BIX continues down past 345 without hesitation? That's certainly a possibility - and a frightening one at that: the word "crash" comes to mind. I don't believe the bullish fervor will dissipate quite that fast, but I may be wrong. The market environment is unique, so it's dangerous to assume the "usual patterns" will continue. Catch-phrase: keep on your toes!
Expect the unexpected: yes volatility is back - just like I said it would be back in my November 2006 "Outlook For 2007 And Beyond" article.
Get the complete version of this article, including a chart of BIX and links to the other articles mentioned, at www.TrendSensor.com/MarketBrief/ DISCLOSURE: Murray Nickel holds no position in BIX.
Murray Nickel is a mathematician, statistician, and professional trend trader. He offers a free trial of trading signals for global market indexes and index ETFs, spot Forex, and spot Gold. He also mentors trend traders aiming to succeed at trading global markets.
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