Monday, August 10, 2009

Banks not done yet

Last week I pointed out that banks and financials appeared to be in the midst of third wave - "lagging", if you will, the broader markets which seemed to be in a fifth. Here are a few charts that make it abundantly clear, at least to me.

Here's $BKX intra-day. I simply see no other way to count this except as an extended third wave.

I took a crack at labeling the subwaves on XLF. Frankly I'm not sure the minutia even matters. The general idea is the same - three clearly defined moves thus far, not five. As a side note, look at how almost all the second waves are sideways corrections while the fours are sharp, the opposite of what we'd normally expect.

One thing to note is the divergence between $BKX and XLF in the second wave position -- $BKX had a very deep retracement, while XLF moved sideways. Based on the principle of alternation, the two should diverge again with banks moving sideways and XLF dropping sharply. However I would not be at all surprised to see them both move sideways (oh yay, could we have another triangle please?!?!) because they both have support from key fibonacci fans nearby.

So where does this put us in the grand scheme of things? As I've mentioned before, I believe banks are tracing out an ABC zig zag for Primary 2, much simpler and clearer than the double or triple ZZ (depending on who you ask) that the broader markets seem to be tracing.

Therefore we should expect five waves of equal degree to the ones we got in the initial rally off the March low. See the notes on the chart below. Personally I still think $59 is a good final target for $BKX.

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