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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! In fact, BIX has recently gone into a near-vertical plummet southwards. My analysis suggests BIX should bottom out under 300 - near 290: still a long way below the recent 361 close (about 20% below, in fact). Now BIX could continue its near-vertical drop to that level without interruption, 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. 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. 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 may be next year. Right now we are about to enter what may be the last good buying opportunity in US markets for a long time to come. In the immediate term BIX should not drop below 345 in any persistent way. If it does, even I will be frightened as the only suitable explanation that comes to mind is that dreaded five-letter word: CRASH! I don't think we're heading there - at least not yet. But I may be wrong. This is certainly no time for complacency. Volatility is back! Yes, I predicted that as well - in my November 2006 article: "Outlook For 2007 And Beyond". 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.
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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 build consistent success at trading global markets. You can get a unique content version of this article.
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