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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!
Hello Chris, I’m seeing the exact same pattern on the AUD which would obviously make sense and I agree with you that this level should be treated with respect. But whatever rally we do see from these levels I believe will be short lived.
Nice TA, EU is heading south, no one appears to contradict that.. While HS is crystal in the charts, just cant connect the macro view with the HS, IMO, this HS most likely will not play and go downside. Thanks, appreciate your tiem Chris.
I think it would be helpful to compare sentiment today vs sentiment in 9/1/2010 to get a feel for the direction of this ETF.
There was an inverted H&S in July 2010 because of QE2, I do not think it will happen this time. We will see next week.
Hey Chris….Good one! The boys at “manipulation control” have done an awesome job on all of the flag/pennant patterns. They have global investors scratching their heads and other parts of their bodies over the current situation. I have been sharing this potential pattern with members for about 10 days and wanted to share it with blog viewers.
This pattern is an extreme read and could blow up at any minute. This sector, IYM/Copper has helped us a ton per portfolio construction and with individual trades. I respect Dollar resistance and potential IYM support. I like looking at roads less traveled to help us with bigger picture issues.
Thanks for you viewership and great comment.
Chris
Why do you do this to me – I was ready to throw in the towel and say the market is headed much lower – due to the breaks of the recent supports/uptrends and now you throw a monkey in the wrench. Thanks for keeping me on my toes. Gotta say, the dollar is the key!