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Wednesday, August 26, 2009

$DJUSFN Bank Charts

At first glance, the DJUSFN looks like its sporting a wave [iv] triangle. And indeed I really cannot make a better count at the moment so no need to try and outguess it.

But when you "zoom in" on the structure up from recent low 2 weeks ago, the top actually looks like it may be in and that the triangle is a "red herring" pattern and is a clever lie.
4 reasons why this may be the case (refer to the 5 minute chart):

1) There are nine waves up. I had to put a pink (i) and (ii) in an odd place just to make a Minute [iv] triangle work.

2) There exists divergence with the general market. When the general market made new highs (1037 on SPX) on Tuesday, the financials did not. That is bearish divergence.

2) The Minute [iv] triangle has 2 waves that don't look right.

3) The move off the financial top could be a 5 down and sports a nasty dropoff.

4) The Minute [iv] triangle dropped below the previous subwave (iv) low. That generally violates the principles of extended waves.

So in conclusion, I'll show the Minute [iv] triangle because it would be silly for me not to. However I am not sure a new financial high will come even if a market high comes. It would be normal for financials to NOT make a new high at a major market top. It would help confirm bearish divergence between secondary indexes.

Disclosure: I have a FAZ long position bought near the financial top. If it pushes higher I will add.
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