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 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.

In that article I predicted a top for the sector near the end of January 2007. It actually came in on February 20, 2007 - so I was out by about three weeks. And I guess folk who had read the article had dismissed it by then, or - more likely - completely forgotten it.

But take a look at an updated chart of the S&P Banking Sector Index (BIX): 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.

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.

We're approaching 355, which has been support or resistance on 10 occasions since early 2004. I expect BIX to form a bottom within the next week in the 345 - 355 range, then bounce 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.

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!

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.

The full version of this article, including a chart of BIX and links to the other articles mentioned, is available at www.TrendSensor.com/MarketBrief/ DISCLOSURE: Murray Nickel holds no position in BIX.

Article Source: http://mylilpeanut.com

Murray Nickel is a mathematician, statistician, and professional trader. He offers a free trial of trading signals for market indexes and index ETFs, spot Forex, and spot Gold. He also mentors traders aiming to excel at trading global markets.
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