The banking index and financials are set for a crash - or not? May have to defer for several months!

Here's a quick look at the banking index ($BKX) and the financial sector ETF (XLF). They've made rather surprisingly strong moves higher recently, which I'm sure has contributed to the continuation move higher in the broader indices. But they haven't made new rally highs - yet. We were thinking they had put in a "B" wave top and therefore were in process of rolling down to lead the indices lower in a "C" wave down to retest the March 2009 lows. Either these make a head-and-shoulders top with a lower-high right shoulder, and down into the "C" wave down idea (or at least a real good pullback at the standard head-and-shoulders target that would approximately double the most recent drop; before rising up again). Or if they refuse to go into a h&s drop, and instead poke up to new highs, that supports equities indices moving to higher "B" wave levels too, later in the year.

Since various other technical methods are indicating the indices have higher levels to reach later in the year. Of course, there may be a substantial pullback into March - could be from 5% to 20% ... Well that could also be the difference between the $BKX and XLF retesting their swing lows at the "neckline", or breaking under that level. So it should be a place to watch if they just roll down.

But they may poke new highs first. They've been pushed back a bit by resistance at the prior highs and the upper Bollinger Band on the weekly. But the recent strength suggests they're likely to poke higher soon. Assuming that happens, then it's unlikely a correction into March will violate those "neckline" lows.

A head and shoulders formation can have the right shoulder be higher than the head, but it's uncommon. So the recent strength is making a h&s idea much less likely now. That's why I'm drawing attention to this. These two sectors have long been thought if as very central to the broader markets' health. If these can hold in with higher highs and higher lows - or at least recover from the expected March lows in good fashion - that will help the broader indices do likewise.

And then of course we'll see what happens after August - but it's many months until then. We want to be on the right side of the trade until August and then after August too!