Don't Get Caught Catching a Falling Financial Knife

By: EWI

Editor's note: This article was adapted from a new subscriber-level summary report, Don't Get Caught Catching a Falling Financial Knife, from Elliott Wave International, the world's largest independent financial forecasting firm. For the complete report, follow this link. It's free to read.

In November, The Elliott Wave Financial Forecast discussed the importance of a key long-term divergence between the major stock indexes and financial stocks.

As the major U.S. stock averages pushed to new all-time highs earlier in 2015, our chart (see it in the full report) showed the KBW Bank Index retracing 61% of its 2007-2009 decline in a clear, three-wave countertrend rally, a basic corrective pattern in Elliott wave terms.

While many investors migrated to that sector in an attempt to profit from a looming Federal Reserve interest rate hike, our Financial Forecast took the opposite side of the wager, arguing that a "great turn lower" was at hand, just as it was in 2007, when the financials led the way into a major bear market.

In what the media later called "one of the biggest surprises of 2016," financial stocks skidded lower through February 11. "A new era of Fed tightening had many believing that this would be the year that these stocks shined."

From our bearish forecast in November to a February interim low, the KBW declined an additional 25%.

The carnage only emboldened investors. Straight through the bottom of the selloff, headlines continually urged investors to take advantage of the decline.

To see the chart and read the rest of our 3-page subscriber-level summary report, including the second half of this piece plus two additional sections on the indicators our analysts are watching closely right but few others are talking about, please follow this link. The report is 100% free to read online, but it's only available for a short time because its contents are so timely. Click here to read the full report >>

Editor's note: This article was adapted from a new subscriber-level summary report, Don't Get Caught Catching a Falling Financial Knife, from Elliott Wave International, the world's largest independent financial forecasting firm. For the complete report, follow this link. It's free to read.

About the Publisher, Elliott Wave International
Founded in 1979 by Robert R. Prechter Jr., Elliott Wave International (EWI) is the world's largest market forecasting firm. Its staff of full-time analysts provides 24-hour-a-day market analysis to institutional and private investors around the world.

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