Charts and Commentary
This article originally appeared at StockTiming.com on February 1, 2006.
I want to share a longer term investing tip with you today ...
First, there is an old saying by the old timer's in the investment world. They say, "Watch the banking industry, because if it is in trouble, the market isn't very far behind."
So, let's look at the Banking Index over the last 15 months and compare it to the S&P in the chart below.
I drew green trend lines on each on the chart below. Note that the ones I drew where when the action of the Banking Index was DIVERGENT with the S&P's price.
*** Note what happened to the S&P after the divergences.
The pattern for the last 15 months has been a 1, 2, 3 lower top movement for the Banking Index followed by a fall in the S&P. Note labels 1, 2, and 3 below.
Now note where the Banking Index is now. It has had a 1 and 2 divergence ... but no 3 yet. At the same time, the S&P's price divergence is not as high as it could be.
With the new Fed. Bernanke now in the game, the Institutions will be watching Bernanke in an effort to know his probable future direction. When that becomes clear, the Banking Index will react up or down. The current direction of the Banking Index is suggesting that Institutions believe that Bernanke may not be quite done raising interest rates.
Just a quick note on the VIX chart I have been showing for the past few days ...
Its update is below and it now shows the following:
- That yesterday, it rose and closed a gap and then retreated.
- It is holding the Green support line that I drew.
- Between the upper resistance and support line, it has now formed ANOTHER triangular pattern, an ascending triangle.
- This triangle is within 2 days of breaking to the upside or downside. Historically, ascending triangles more than often break to the upside.
Be patient and watch the action for where its true breakout is, and the S&P will go in the opposite direction.
(Note: there is more of a science to doing this than it appears, although it appears quite easy with the simplicity that I have been illustrating this technique. There is a time to use this technique and a time to avoid using it. I am seriously considering conducting an investing seminar in the late summer and this would be one of the many strategies that I would teach.)
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