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As I emerged from my Easter retreat I saw through my blurry eyes headlines in the financial press that there was going to be greater regulation of investments banks in the US, and ditto for Australia. The Australian Federal government wants the States to hand over regulation of margin lending; and I see super funds the world over are considering ceasing the lending stock so that ‘shorting’ won’t play havoc with their members’ valuation. All so noble but I ask has the damage been done – has the horse not already bolted?
I also wonder, in many cases, whether valuations have only been ‘brought back to size’? And in any case are such murmurings mere political standing? Even grand standing.
And will it stop the market sliding further? No, no, no!
In March 7 TTN, I illustrated an Elliott chart for the financial sector – XFJ, and below I give you an update:
click chart for more detail
The chart has played out as Elliott had indicated with the only differences being the timing and the extent of the recovery. But you may note how wave four is ‘grayed’. This indicates that wave four is not yet over so we could see it limp higher over the next week or so.
That is all fine tuning. The key aspect to note is that despite any planned regulations the financial sector is yet to see another slide. And a long deep one.
For mine no propping up will stop the financial market sliding another solid 20%. Phew painful – in my view.
If you hold financials you will of course have to make your own assessment as to what strategy you may adopt – do nothing? Maybe CFDs? Options? There is an armoury of defense you can use. Do your homework in good time because we know slides can happen beneath our very eyes.
Enjoy the ride
Tom Scollon
Chief Analyst
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