Thursday, July 21, 2011

7 Month Trading Range: Breakdown or Breakout (Part 2)

First possibility of such a long lasting consolidation is that we are experiencing a gigantic top formation, professionally known as the Head and Shoulders formation.This formation is a typical termination pattern and often takes place at the top. We have experienced such a formation once previously in the recent history:

Every one knows what happened after 2007 top: A 50%+ decline in the stock market, the Great Recession and much much more. Looking at the charts, similarity is eerily identical. For one instance, it might mean that we are about to experience the following again:

However, I do not think that the stock market is going to experience the same fate. In fact, this time it might be totally different. And instead of a significant decline, we might experience a sharp rally. I will discuss the rally potential in the next part of this analysis.

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