Last summer an inverted/Bullish head & shoulders pattern formed in the Basic Materials ETF (IYM).  As this pattern was forming, in the summer of 2010, sentiment was becoming extremely negative and the “Power of the Pattern” was suggesting to long stocks (see post here). A strong rally in IYM and the broad market soon followed…IYM gained over 60% in the following months.

This pattern read I suspect will seem like an extreme to most and I understand why anyone would feel that way.  I wanted to share a possible read in a key leading sector.  This pattern could blow up/fall apart very quickly should the a price breakdown take place at the right shoulder. 

The world seems to be focused on the flag/pennant patterns of late, wanted to share a pattern that might be a leading indicator to the global breakdown/breakout of the pennant patterns. If the Right shoulder breaks down in IYM, odds increase a good deal that the broad market follows…this pattern is a “Big Deal” regardless of which direction it takes!

How The Recent Decline In Stocks Looks "Eerily" Like Major Bear Markets Of The Past