Back On Dec 4, 2006 The Banking Sector Was Doing Fine.

Back in early December last year when I penned the article "Is Banking Tanking?", the banking sector was chugging northwards like all other sectors, and the only hint of trouble was that it had gone from a leading sector to a laggard sector since the June 2006 low point.

It was February 20, 2007 when the Banking Sector (symbol = BIX, S&P Banking Sector Index) finally topped out. My guess is that most folk who had read my article had completely forgotten about it by then.

But fast-forward to today and 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.

What's much more likely is a traditional A-B-C decline in a double zigzag form.

We should be very near concluding the slide to point A of the zigzag. A bounce should unfold next to point B (likely to be near 390), followed by the next slide south to 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.

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.

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'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! Yes, I predicted that as well - in my November 2006 article: "Outlook For 2007 And Beyond".

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.

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