Bank Index

There is so much quantitative data on the market right now that it so overextended that it is almost useless to interpret it. Basically, most of it is saying the market is so oversold that we should rally, and should rally hard. But I have been following a few indexes and ratios as guideposts. Since this is arguably the greatest financial crisis ever, the banking index (BKX) is an excellent forward looking vehicle to guide us where we are heading. Big surprise, it doesn't look good. Today we took out the Philadelphia Banking Index's lows from early October and last July. I think this is a pretty big deal and pulls 800 into the crosshairs pretty quickly, maybe by the end of this week or at least the end of November.

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Dig a little deeper and you can see an interesting relative performance chart for the BKX and the S&P 500. In both instances, the BKX led the turn in the overall market by several months. Back in July of this year, the ratio bounced HARD off of the bottom established in the 1998-2003 bear market.

Assuming logic and geometry prevails (if you have any question about this market's geometry look no further than the 2 beautiful tops that the market carved out in 2000 and 2007 on the S&P - as much as the market feels random and volatile, there is a rhyme and rhythm to this beast):

The fact that we took ourselves back down to the last bear market lows in this ratio puts the very real possibility that the 768 intraday low on the S&P in October of 2002 will be revisited in this waves decline. Slightly scarier, is the ratio's decline during this bear took out the intraday low from the previous by a substantial margin. Obviously, if those lows are taken out on a closing basis (especially on the weekly or monthly charts) this market will gain new and uncharted territory potential towards the downside.