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Sunday, April 12, 2009

The Banking Index





The banking index is something that has been very, very interesting as far as waveform structures. If one uses the other indexes such as $DJUSFN or XLF or others, the waves are not as "true" as the banking index. I could point out 10 spots where the other indexes are wobbly over the past 2 years as compared to the banking index. So when it comes to targeting financials as a whole I prefer the banking index. It just works better.
I have the banking index in either an intermediate wave (4) or a Primary wave 4, I am not sure. What does this mean? Why wouldn't this be in the same "count" as the SPX or the markets as a whole? I have pondered this much lately. One of my ponderings is that Intermediate (or primary) wave (5) of the banking index will occur at the same time as the SPX Primary wave 3. And one of my ponderings is that the banking index will be crushed beyond waveform count recognition.
The banking index peaked at 121 in 2007. It bottomed at 17.76 recently. A tremendous loss. If an SPX Primary wave 3 is to occur, then surely the banks will get crushed and the banking index will be obliterated way under 17.76. Kind of like what happens to a stock that becomes a penny stock. In other words, the waves will matter in the micro but so crushed in the macro that it just won't be comparable anymore. How can you compare a 121 high with *perhaps* a 3-4 low? So it suggests that the banks will get crushed and become insignificant as far as the market is concerned. And that would make sense.
Regardless that is speculation. For now the banking index waves ARE largely trackable and very countable. The patterns are clear at several key spots which I have identified:
1. 121 peak in May 2007.
2. Clear triangle (a likely wave 4 of some degree) in early 2008 with a long thrust out of that triangle.
3. A 50% corrective for wave (2) peak in September 2008.
4. An extended wave (3) channel and a perfect extended wave (3) that follows EW rules
5. A break above that wave (3) channel in the current rally
6. An ascending triangle in the current rally.
The other financial indexes don't follow or track these patterns exactly which is again why I prefer the banking index because the banking index has been true.
I have many notes on my 3 charts and these charts I will keep on my public chart lists. Link on the left side of the page. The fate of the banking index will determine the fate of the markets as a whole. Its a key index.


10 comments:

  1. Fascinating post and great charts, many thanks.

    1st I am bit confused by the 2 statements:
    1) "banks will get crushed and become insignificant as far as the market is concerned"
    2) "The fate of the banking index will determine the fate of the markets as a whole. Its a key index.'

    Do I understand you that banks will no longer lead the markets, yet then you say they are key for the markets? Perhaps 1 is long term and 2 is short term?

    Could you elaborate on this (perhaps another post):
    "One of my ponderings is that Intermediate (or primary) wave (5) of the banking index will occur at the same time as the SPX Primary wave 3."
    ... and the other one:
    "So it suggests that the banks will get crushed and become insignificant as far as the market is concerned. And that would make sense."

    It is hard to imagine financials being sold in 5 while the rest of the market continues on with up 3. In particular, from the very top the story is that healthy banks are essential for healthy economy and credit is key for recovery, etc. You know what I mean. Of course, most of it is lies but they do have the buy in from the US govt. Anyway I am curious about your logic for concurrent financial index decline and SPX advance.

    Again elaborate on why it "makes sense" that banks would become insignificant for markets. In the current economy which is so heavily dependent on credit it is hard to see how banks would become insigificant. Unless you are suggesting a fundamental shift.

    In fact, I understand you are looking at everything through the EW/tehincal lens, but ... I think in these statements you are suggesting some big shifts, changes in the economy. For instance there is clear implication abount banks' place in the US economy. Can you speak to economic/social aspects of the changes you are talking about? Perhaps end of govt support for banks, or wider public outrage and backlash against banks, etc.

    Again great stuff and thanks for the hard work. When I recover from the FAZ fiasco I'll make sure to click the donate button ;)

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  2. "...from the very top the story is that healthy banks are essential for healthy economy"

    Meaning top of the US govt, not top of your post. Sorry for confusion.

    ReplyDelete
  3. I am talking about when the SPX goes into a Primary wave 3 down (not the current minor wvae up) later this year or sooner. I would think the banks also head down severely at the same time and the index drops way below the current low of 17.75.

    For the current rally, I think banks need only hold themeselves up to a certain point. If the banking index corrects above 43 or so, then all these waveforms and counts will have to be revisited

    ReplyDelete
  4. Hi Daneric.

    Thanks for the info.

    I'm also a student of EWT, wondering whether you reference book is a blue book called Elliot Wave Theory principles, written by an author from Queen's University. Thanks.

    ReplyDelete
  5. Daneric, thanks for your hard work. How confident are you in this count, suggesting the bank index will see new lows? Do you have a broad time frame for this based on this count? Is there any chance that you may have an overly bearish point of view, or are you just simply going by the count? Thanks.

    ReplyDelete
  6. Ahh, got it. thanks :)

    ReplyDelete
  7. Dan, From Max Cherry
    I am still struggling with the wave 4. I see you have the $BKX in a wave 4 now theory goes that the banks and financials lead the S&P which is another reason I think the S&P is in some sort of wave 4.
    I posted a chart the other day showing why I think we might be in a "c" of a wave 4 abcde triangle now I might be wrong (most likely) here is another bearish count with the S&P finishing an ABC running wave four. http://stockcharts.com/h-sc/ui?s=$SPX&p=D&yr=1&mn=8&dy=0&id=p83946988130&a=163889559&listNum=12 Most e-wavers have the count as finishing 5 down and the last move being A or 1
    part of the reason I think it might be a 4 is the 21 day P/C ratio is at .65, at wave 2 is was .70. Bullish% on the S&P is at 60% at wave 2, 55% at Eric's site he has GOOG completing a wave 4 http://stockcharts.com/h-sc/ui?s=GOOG&p=W&yr=3&mn=0&dy=0&id=p68845434367&a=165219103&listNum=12 which lines up with the S&P in a 4 Also GS looks like it is completing a wave 4 http://stockcharts.com/h-sc/ui?s=GS&p=W&yr=3&mn=0&dy=0&id=p32470250825&a=165296696&listNum=12 I guess time will tell.
    Keep up the good work

    ReplyDelete
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