On January 16, 2018, I predicted that we would see a bear market in the financial sector over the following 12-18 months. We’re in the 11th month of that prediction, and if someone had shorted XLF at the January high of 30.3255 and exited this week at the low of 24.93, they would have realized a return of approximately 18%.
Not bad, but the question remains: Will XLF continue lower? This is a harder prediction to make based on my mathematics (which you can find published in the Polish National Academy of Sciences official physics journal here and here). To be conservative, I would say the drop from the high of 30.3255 would be approximately 20%. We’re almost there at 18%, and with a 2% margin of error we are there. A pure 20% drop would be 24.26. It will be interesting to watch, especially over the next one to six months, if the XLF bottoms out anywhere near that.
I do predict that XLF will begin climbing after this dip over the next 6 months. The climbing cycle is then typically 7 to 9 years. This is easily verifiable by eyeballing the historical data. So a buying opportunity is most likely on the horizon.
FULL DISCLOSURE: To the best of my knowledge and belief, I neither currently have nor have had since January 1, 2018, any direct or indirect investment in XLF or any other financial sector asset.