Next weekend is the six month anniversary of the March low, back when "no one' wanted the banks/financials, in particular. The market appetite for shorting banks/finacials was enormous back then, and still is. Witness the short squeeze in AIG.
My last comments on the FAZ were on March 20...
"...take profits when targets get MADE" at this 34.50-34.80 Rectangle resistance area. We know that targets against the trend are less likely to get MADE. The trend has been down, and we're AT RESISTANCE, so if I had gotten long the Ascending Triangle breakout, I would take at least some off the table."
...and, on the morning of March 24:
"Oh, my. What an UGLY day for the FAZ. The "possible" Bearish Wolfe Wave simply turned out simply to be a Bear Flag AT RESISTANCE. Yesterday was a big Gap Down, and down she went for a 45% loss in a single session.
Oh, my."
Here's a link to that chart:
http://1.bp.blogspot.com/_pcU86gqBxuA/SciTOQpBgcI/AAAAAAAABe4/BCzLONi6c5I/s400/FAZ+-+3-
Since that crash in the FAZ off resistance near $35, it's down about 93% The FAZ had a 1 for 10 Perverse split, so Friday's close of 22.87 is 2.29, pre-split.
FAZ holders expected huge gains of 100% ... 200% ... 300% ... 400% ... but, it crashed and instead ...
... it is the FAS that has rallied a whopping 600%, as of Friday's high. Talk about the perversity of markets!
It's a great example, though, of:
1. "Buy what no one else wants."
2. "Buy when there's blood in the streets."
3. "If you can keep your head, while those about you are losing theirs..." (paraphrased)
4. "Want what Ms. Market wants."
5. "Admit when you're wrong as quickly as possible, and get outta there!"
6. "FOLLOW the market."
Six months after the low in the FAS, we found out last week that there have been at least 81 bank failures. Dick Bove expects 150-200 more. Meredith Whitney expects 300 more bank failures (check me on those numbers). Banks still have billions in losses.
Late February/early March, those who thought that the news still would be bad six months out were right. But, if they played their opinion/prediction by purchasing and holding the FAZ to this point, they got absolutely clobbered.
Often, the market doesn't make sense and also can be downright perverse, but as the kids say, "It is what it is." Playing against Ms. Market and trying to tell her what to do can be very dangerous to our wealth.
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By the way, notice the validated resistance at the top trendline of the Falling Wedge in the FAS chart (the pattern in purple). There's no ALWAYS with technical analysis, but when we get that third "hit" to a trendline, Ms. Market is telling us at that point, "Yes, that clearly IS RESISTANCE!"
As we've seen so often,when a validated trendline gets taken out, that usually has some significance and in this case, it did.
Both Falling Wedge targets got MADE, which if the final confirmation that both the trendline and the pattern were valid.
That's why I try to be precise about trendlines. If I go slicing through wicks of candles, willy nilly to suit myself, I would have no idea whether the trendline is valid, or not.
That's just my own view of trendlines, of course. Other analysts see it differently, which is their privilege.
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