While most of the major indices have retraced 127.2% of their drops from the 2007 highs, XLF has finally reached the 50% mark. In dollar terms, it’s back to 22.01 after plunging from 38.15 to 5.88 (an 85% bloodbath, for those who’ve forgotten.)
From a harmonic standpoint, the .500 is an average turning point — not as effective as the .618, but better than the .707. A substantial downturn from here might suggest an eventual Bat Pattern (the yellow .886 at 34.47.)
But, the top of the rising white channel is already at 34.47 and XLF ain’t there. So, it’s safe to say that 34.47 isn’t right around the corner. The steeper, tighter purple channel doesn’t reach the .886 until the end of 2014.
It’s more likely we’ll get a downturn either here or at the .618 at 25.82. The top of the purple channel is already there. But, the white midline — which has signaled reversals in Mar 2012 as well as May and Jul 2013 — doesn’t reach it until May or Jun 2014.
The close-up supports the notion of a reversal here at the .500, also the scene of a rising wedge and Crab Pattern completion.
Downturns always come easier with catalysts. It remains to be seen how banks, the principal beneficiaries and raison d’être of QE, will perform in the face of Fed tapering and renewed instability in Europe and Asia.