Banking Index Sounding Stock Market Alarm Bells

By: Marty_Chenard

Too often, investors only look at the short and medium term trends in the markets.  When we have had a year with exceptionally damaging sub-prime problems, it is time to step back and look at 5+ and 15+ year views.  It is only the longer term views that can give you a clear picture of how much damage has been done.

Today, we will look at 6 and 16 year  views of the Banking Index ... symbol: BKX.

Let's start with 6 year view of the Banking Index.  The Banking Sector did remarkably well from July 2002 to February of 2007.  Looking at the chart, you can see that it had a steady up trend during that time which produced a 100.73% move to the upside.

But, that ended in March of 2007 when the Banking Index had hit its peak.  Five months later, the Index broke its 5 year support to the downside.  And now, 11 months after the peak, the Banking Index has given up over two thirds of a rise that was 5 years in the making. 

Clearly, a lot of damaged occurred in the past year.  See the next chart ...

To get the long term assessment of how much damage was done, we turn to a 16 year Point & Figure chart on the Banking Index.   This chart measures the price action as of 11 AM this morning.

The chart shows that we have had a clear support line for the Banking Index going back to 1994.  Unfortunately, the recent Banking down trend took the Point & Figure chart below its 16 year support level.

This infraction suggests that the financial problems ahead of us could be way beyond anyone's expectations, and could usher in a long term bear market for the financial's that would be destructive to other parts of our economy.  See the next chart ...

Next, I created a SemiLog chart of the Monthly Banking Index prices.  This confirms that a 13 year support line for the Banking Index was clearly broken to the downside in the past 4 months.  The next important support level now sits around the 66 to 68 level.

For the Federal Reserve, this poses a serious problem, and one that could be beyond their ability to repair things as they typically act too late with too little medicine.  The odds of a recession have now risen above 50%, and this data could point to a real problematic recession that goes deeper than current expectations.

By Marty Chenard
http://www.stocktiming.com/

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Marty Chenard is the Author and Teacher of two Seminar Courses on "Advanced Technical Analysis Investing", Mr. Chenard has been investing for over 30 years. In 2001 when the NASDAQ dropped 24.5%, his personal investment performance for the year was a gain of 57.428%. He is an Advanced Stock Market Technical Analyst that has developed his own proprietary analytical tools.  As a result, he was out of the market two weeks before the 1987 Crash in the most recent Bear Market he faxed his Members in March 2000 telling them all to SELL.  He is an advanced technical analyst and not an investment advisor, nor a securities broker.

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