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.

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.

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.

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.

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.

This impending rally could last to anywhere from mid-October 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 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".

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.top5tv.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.
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