Since the lows in 2009 the S&P has gained around 250%. During the same time frame, Semiconductors (SMH) has gained nearly 520%.
The chart above looks at SMH since inception and highlights bearish reversal patterns (Bearish Wicks). These types of patterns often take place at important highs. As you can see each time SMH created a monthly reversal pattern at each (1), it ended up being much lower in months weeks and months ahead.
Since the lows in 2009, SMH hasn’t created large bearish reversal patterns. In fact, it did create the opposite! SMH created three bullish reversal patterns highlighted above, right before SMH rallied 100% in a couple of years.
The rally of the past couple of years now has SMH testing 2000 highs where this month it appears to be creating the largest bearish reversal pattern since the highs in 2000 at (2).
Will the outcome be different this time? The Power of the Pattern is of the opinion that the price action of this leader over the next couple of months will tell all of us a ton about what portfolio construction should look like six months out.
This reversal pattern comes on the heels of numerous bearish hangman patterns last month in key indices.
As the stock market leader (SMH) creates the largest monthly reversal pattern in 18-years this month, many key indices above are testing important breakout points at each (1) above. The Power of the Pattern believes that “Multi-Decade Opportunities” are in play.