On 7/27 the Wilshire looked to be completing a Right shoulder of a bearish head & shoulders pattern and the “Power of the Pattern” was suggesting an ugly pattern was at hand and investors should reduce risk right away! (see post here) In the following weeks the broad market lost almost 20%!!!
On 10/27 the “Power of the Pattern” reflected that the broad market was on support and too many investors had piled into cash. I shared this with premium members as a buying opportunity on support and posted it on the blog a few days later. The chart reflecting the Rydex ratio was a levels not seen many times in the last 15 years (see post here)
Both of the extremes mentioned above have helped create a rather large flag/pennant pattern in the chart below…
CLICK ON CHART TO ENLARGE
The top and bottom of the flag represent key support and resistance. This flag, is drawn from key highs and lows on the weekly chart above. The end of these lines extends clear into 2013. I wouldn’t think the market would remain trapped in this pattern for all of next year, yet anything could happen and people need to be prepared for that boring potential!
The key to this pattern would be to follow the breakout/breakdown from the flag. From top to bottom the flag has a 20% range, with the Wilshire around the mid-point right now.
Chris…What is neat about the “Power of the Pattern” is that even if the flag comes true, their will be plenty of opportunities somewhere. Premium members look at 2011 as the “year of the silver trade” as we picked up the majority of its 60% rally the first part of the year and have been doing well on the short side since it hit $50.
2012 will be the year of something else! Movement will come from somewhere, it ALWAYS HAS.
I would bet against the flag holding up for that long yet it could happen. Cool things about the flag/pennant pattern is this…the longer it last, the more investors it makes mad and when the breakout comes, the bigger the ending move will be.
Their is “always solutions” to the world we live in!
Happy Holidays to you and yours Chris,
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Isn’t that another head and shoulder pattern that has formed just beyond the inverse h&s – the left shoulder is lower than the right shoulder?
We are a long-only investment shop (by decree of our RIA). And you have just depressed me. Just kidding…but no really that would be depressing.
Thanks for the great charts. Your analysis over the past year has broadened my knowledge of the markets considerably and has helped me fade out a lot of the noise that passes for news.
The potential Inverse Head & Shoulders neckline is on my watchful waiting list for a break or reverse
Breaking the Flag Support line is on my watchful waiting list also as in this could be the right shoulder of a 2+ year old Head & Shoulders
* Nice pattern recognition on the possible building Inverse H&S most have not spotted it yet
Sounds like we’re going to have a great year in 2012, selling at resistence and harvesting at support, and vice-versa, until the flag breaks either way. What’s not to like?? Piece of cake!!