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When I wrote the article "Is Banking Tanking?" in early December last year, the banking sector was doing just fine. The only cloud on the horizon was that 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 take a look at an updated chart of the S&P Banking Sector Index (BIX): Banking Really Is Tanking! There was no sign of banking tanking when I published the original article. That was then, but now? Yes banking really is tanking. In fact, it has recently gone into near-vertical free-fall. 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. In my view a traditional A-B-C decline in a double zigzag form is likely to unfold, and the progress of the slide to-date supports this view. The decline to point A of the zigzag should be very nearly complete. A bounce should follow next to point B (likely to be near 390), then the next plunge to point C of the zigzag, at under 300. I think BIX should bottom soon in the 345 to 355 range as there is a strong band of support in this region. We should then see it bounce strongly in a zigzag to somewhere near 390. That bounce should take us through to roughly mid-October, although it could stagger on after an initial spurt, and extend through to the years end. After that bounce another dramatic plummet south should unfold. Only this time I expect the major US indexes to join the plunge south in earnest. Something like eight or more consecutive down days for the DJI, including a few dramatic ones, is what I have in mind (more on that in an upcoming article: "Seven Years Bad Luck"). But that's a way off yet. Right now I'm on the lookout for what may be the last good buying opportunity in US markets for a long while. And what if the near-vertical slide in BIX continues down past 345? That's certainly a distinct possibility - and a scary one at that: the word "crash" springs to mind. Personally, I don't believe the bullish fervor will dissipate quite that fast, but I may be wrong. The current US and global situation is unique, so it's dangerous to assume the "usual patterns" will unfold. Catch-phrase: cast off your complacency and keep on your toes! Volatility is back! - just like I said it would be in my November 2006 "Outlook For 2007 And Beyond" preview. View the full 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.
Article Source: http://www.financemanual.com
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. Don't reprint the same version as everyone else. Get your own unique content stock markets article here.
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