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

When I wrote the article "Is Banking Tanking?" in early December last year, the banking sector was rallying like every other sector. Well, almost. The only cloud on the horizon: it had gone from a leading sector to a laggard sector since the June 2006 low.

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 is down almost 14% from that February high.

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.

By my calculations BIX could ultimately bottom out near 290 - that's another 20% below the recent close of 361. Now BIX could just persist with its near-vertical descent all the way to 290, but I don't think it will.

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

The decline to point A of the zigzag should be very nearly complete. A bounce should follow next to point B (likely to be near 390), then the next plunge to point C of the zigzag, at under 300.

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 coming bounce could last a few months, or even stretch out to the end of the year.

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! - just like I said it would be in my November 2006 "Outlook For 2007 And Beyond" preview.

Get the complete 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.

By: Murray Nickel

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 excel at trading global markets.
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