Last Breath For The Financials And The Market Before The 2009 Showdown

I think the bad news is that market is about ready to make its real plunge for 2009. The good news is that after this next wave of crash, we are likely going to rally big and actually could close higher for the year. I know it’s hard to believe but that’s the way I see it. I will continue to illustrate this point but I want to share my view on the short term movement of the two major financial indices, the underlying indices for (FAS)/(FAZ) and (UYG)/(SKF).

Dow Jones Financial Service Index (DJUSFIN)

Troubling picture indeed for DJUSFIN. I am looking for a retest of the Nov 20th low or somewhere close to that likely in the next few days. Then potentially it could bounce to the 38.2% retracement of about 212 and hopefully even further to 230. This could coincide with Obama’s new bank rescue package and further bailout plans. Then the nightmare resumes. I think it would likely have to do with the commercial real estate collapse that has not priced into the market. I am hoping that the plunge would stop at 142 however the nightmare could be worse than anyone could have imagined and this DJUSFIN index could plunge to the 70s! Yes that is in the cards so don’t dismiss it. It would be hard for the index to plunge to the downward 261.8% Fib level but in this kind of market anything is possible. Thus, maybe UYG/SKF would make a few more millionaires. But it will take some serious courage and risk appetite certainly not for the weak minded. What is dangerous is the potential fast and short time frame that the crash scenario could occur. I think the smoke would clear in just two to three weeks.

Russell 1000 Financials (RIFIN.X)

Similar picture for the Russell 1000 Financials Index. Looks like it would be hard for this index to go up to the 61.8% retracement level. So perhaps 530s is likely going to be the top for this index although close to 580 is not out of the question. But downside hopefully is going to stop at 370s. Again, tremendous opportunities for FAS/FAZ plays for the agressive and most skilled traders.

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Comment by Richard Channell

2009-04-10 10:20:39

I am just now reading this article on 4-9-09 and I am in utter amazement. I play fas/faz and your prediction was spot on. If I had read this article in January I might not have lost the money I did. Any predictions for the near term?

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