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.

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 fast-forward to today and banking is down almost 14% from that February high.

In fact, BIX has recently gone into a near-vertical plummet southwards.

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.

I think we should see a traditional A-B-C decline in a double zigzag form unfold.

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.

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 2008. Right now I'm anticipating what may be the last good rally in US markets for a long while. But what if the near-vertical plunge in BIX continues down past 345 without hesitation? That's certainly a possibility - and a frightening one at that: the word "crash" comes to mind. I don't believe the bullish fervor will dissipate quite that fast, but I may be wrong. The market environment is unique, so it's dangerous to assume the "usual patterns" will continue. Catch-phrase: 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.

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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 excel at trading global markets.
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