aarc

This Rally May Have Legs - Bespoke

Speculation is the stock market all about.

Here's one long-shot speculative scenario:

BKX has a 1-2-3-4-5 acceptable downside pattern on the weekly chart - meaning - potential bottom in Elliott Waves parlance. If and when a 12345 downside pattern has been completed on a higher timeframe, and a reaction rally has started in the lower timeframe - the next pullback on the lower timeframe, which is the daily chart, is a BUY.

BKX is now consolidating within a very tight range for 8 days after making a 9 days rally. Consolidation usually last more than 100% to 300% of the rally time and 161.8% the usual time it takes for the consolidation to last before the next rally starts.

BKX has a potential to rally back to 83.43 in the next seven months from the 17.75 low IF the stars got properly aligned - so to speak.

A massive 370% price appreciation from the early March low. Something not to be sneered upon given the not so low but relatively high probability rate. I would give it more than 35% chance at this stage and will increase the probability if and when BKX makes further progress using Elliott Waves analysis. IF BKX is able to form an inverted Head and Shoulders pattern on the daily chart and be able to achieve or exceed the potential target of 45.48; then I would give it a 65% or more probability of reaching 83.43.

370% is basically the linear equivalent to 37 years price appreciation expectation by most conservative investors speculating in SnP being able to achieve a high 10% rally every year for 37 years (much less than 10% per year by compounding - forgot the formula A = B+B(1+i)^n?). 7 months or more of high risk speculation is more than worth the 37 years of conservative speculation for the SnP500. Just don't bet the farm.

Use XLF as a trading vehicle for the conservative traders/investors. Use UYG if you have enough trading experience to handle a doubleX ETF. Use FAS if you have more than enough trading experience with proportionate stop loss provision against minimum potential gains since FAS is a 3X ETF of BKX.

For non-traders. I consider a 100% "do or die" capital loss is a good enough bet against a potential 370% gain if done perfectly from the low of 17.75. At current BKX price level of 26.16; the potential gain is now reduced down to 219%.

The discount from the high 121.16 price of year 2006 is still a healthy 78.4% from the last high 85.33% discount. UYG and FAS went down with higher percentage discounts due to price compounding effects of xETFs but are a lot riskier to buy and hold due to counter-party risks.

This Rally May Have Legs - Bespoke

Traders and investors are microscoping the Financials and BKX in particular as the leading indicator for this most recent "bear rally" as we call it.

BKX was able to make a rally from 17.75 to 31.01 trough to initial peak or almost 75% price appreciation. A massive advance in just 9 days from the early March low.

It is now consolidating for 8 trading days since March 19 with a shallow correction and a tight trading range. A very encouraging performance so far.

This bodes well for more upsides as long as the trading range don't expand dramatically before the next BKX rally can start.

Dow Jones and SnP daily and intraday chart patterns are still in a flux with no definitive corrective processes I can hang my hat on.

I expect BKX to lead the way for DJ and SnP to follow.