Ever since I posted in early May that it looked like the banking index ($BKX) had hit resistance on the nice rally, it fell off and now starting to look ominously like a bearish trap door on the weekly chart (bottom chart, below). It's one of the indices below its 200-day moving average still, and today dropping under its 50-day moving average too. This index and many of its components are not much higher than where they were 3 months ago in mid- to late March.The players buying at the early March lows either got out, or must be tightening up their stops, since the wave of new equity issuances since early May. I hope I might have helped some from getting into Citigroup (C) as it looked like it was going to break out of its triangle bullishly - and it didn't, therefore not triggering a buy entry. For those who got into Bank of America (BAC) at that time on a similar-looking trigger as it did "break out," with BKX hitting resistance, it's been a disappointment since.
Keeping it simple, one way to look at BAC is that either it moves above its 200-day moving average and therefore look bullish again ... or it doesn't. From my perspective, taking the short on the sector after it hit resistance in early May is still the right side, and looks like it may start paying off better if and as this index continues to move down.
I explained at numerous times over prior months that the risk from an Elliott Wave perspective is that it may need new lows still (again). That hasn't changed since early May. Conversely, even if you want to count the movement up from early March as a "first wave," there's a very real risk that a second wave correction will move down to retrace 62% of the entire rally off those lows. That would place all the new equity-issuance holders even farther in the red. Will they respond by selling, or just hedging?
So if you've been buying the banking sector at any time over the past 2 months ... Do you feel lucky? Well, do you?
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