Great caution is urged with the banks [BKX] [DJIA]

BKX is essentially the DJIA of banks.  Thus, BKX is an index, not a stock ticker.  You can't buy shares in BKX.  There are ways to play it via ETFs, etc.  BKX is just a perceived health indicator for banks based on calculations done with their share prices (which makes it more of a popularity contest than a real health indicator...).  The BKX index is maintained by KBW (Keefe, Bruyette & Woods) and you can see the list of companies that BKX aggregates in this PDF.

The reason I track it is that DJIA, $COMPX and S+P500 aren't going anywhere without the banks.  When the banks go down, lending for margin loans goes down and then the entire debt Ponzi must contract.  Watch the banks and they will often tell you what to expect next for the broader markets.

So at the BKX backlink I provided the chart below with the commentary: "The banking index is looking very scary folks... it seems like C of 2 is only a day or two from finishing.  I'm looking for either a short stroke 5th per the red path in order to form the owl or a slightly higher high to fill the gap which was only half filled recently.  I do not expect November to be a happy month for stock market longs."




As the current snapshot below shows, reality turned out a bit scarier than I imagined.  Yes it went up a little higher to try to fill that gap but the sellers just jumped on this thing.  They couldn't wait for the gap to fill and that is unusual and certainly not bullish.  Note that the peak was right up into the 61.8 fib.

Following the the rising wedge move up to fill the gap it plunged - that's a technical term - hard back into the range of blue 4 and in doing so it smashed through the top rail of the rising wedge with gusto.  It did so in 3 of 1 and then ran out of steam right at the lower rail.  On Monday I expect a 3 wave dead cat bounce which could go back up to the prior 4th or it could go up so high as to kiss the upper rail from below to finish wave 2 but then it should smash down through the lower rail in wave 3.  Once that happens it will be high odds that we are heading to a lower low that blue 5 and if blue 5 is lost (and it likely will be) then the best the longs can hope for is for this move down to be a 5 wave C movement (instead of a 5 wave 3rd movement).


If you zoom out, that spike is the characteristic unicorn horn which marks significant tops and this top is either B or 2.  That means C or 3 is very likely about to play out for the banks and I have to believe that if this happens that the broader indexes will not be far behind.   In other words, this move in the DJIA, S+P, etc. would eventually count as a deep vee 2nd - something that neither EWI nor Avi are calling for.

If I'm right then we've just been given the opportunity to get back into the deep vee pullback of UVXY which did not (yet) put a in a lower low than August.  As a result we have the real opportunity that its next move should approach if not exceed the recent high of $91 and change.   So keep your eyes on that prize because I think the odds are currently high that it will be achieved. 

The next big move up in the UVXY model should be 95% + odds of a double and only slightly lower (85% odds) of a triple in UVXY from today's price of $28.33.  Buy the first pullback on Monday and use BKX as your pullback guide.  When BKX goes back higher 3 waves, move heavy into UVXY and set loose (5%) trailing stops.




Speaking of DJIA, it broke the support line today with an intraday reversal.  I'll be watching it along with BKX to help determine my trading strategy on UVXY.  There are other ways to count DJIA than shown below.  Once could count it as a 1-2-3 and now working on a 4th.  Let's see if this pulls back in 3 waves to blue 4 and finds support there.  If so, it could reverse back up one more time after that to hit 18k again before really breaking down.  So play it cool, don't over bet up front and of course always value the protection of your capital over the goal of making new money.  IF it smells wrong, sell first and don't hate yourself for missing out on a little profit if that is what ends up happening.  Another trolly car comes by every ten minutes but if you blow up your account you won't have anything with which to fund the next ride.