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…


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.

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