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The chart below reflects how strong the banks were from 2000 to 2007, gaining 58% while the S&P 500 was flat during that time period. In hindsight the S&P 500 was creating a large "Double Top".
So Goes the Banks, So Goes the Broad markets? Some of the time that's really true. For sure when Banks/Financials fell in 2007/2008, they contributed to the broad markets weakness!
The next chart looks back on a few key technical aspects of Banks back in 2006/07. Banks were reaching lofty overbought levels, hitting a Fibonacci 161% extension and created a bearish rising wedge pattern at (1). Once support broke, banks moved from relative strength to relative weakness.
Currently the Power of the Pattern suggests that XLF (the Banks/Financials ETF) is reaching lofty overbought momentum levels, now hitting a Fibonacci 161% extension level and has creating a potential bearish rising wedge at (2).
From a fundamental perspective, Banks seem to be in much better shape today than in 2006/2007. From a Power of the Pattern perspective, "Banks Bear Watching" due to this setup at hand and could well impact the S&P 500 IF support should be taken out (which remains in place at this time).
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