Is Banking Tanking?: Prophetic Words From Dec 4, 2006

By: Murray Nickel

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

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.

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.

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

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.

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 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.

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.

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 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 succeed at trading global markets.
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