How To Position for a 10-Year Market Pattern Breakout

NEW YORK ( -- Just before things took a dive on the weekend, the major market indices did not look promising.

If we take an even longer-term look and examine the monthly charts, we can see that the S&P 500 and the Dow Jones have been approaching multi-decade rising-channel resistance lines. Furthermore, they appear to be forming bearish rising-wedge patterns.

Monthly Long Term Chart Analysis and Thoughts

As many of my longer-term subscribers can attest to, I always preach that technical analysis is one part art and one part science. You can never be completely certain about what the outcome of a pattern is going to be. However, we can use historical analysis to make better investments. The great American Novelist Mark Twain probably said it best when he said "history does not repeat itself, but it rhymes."

Regarding a rising-wedge pattern, we know that roughly two-thirds of the time they break to the downside. This also means that one-third of the time they break to the upside.

To accomplish our goal of capital growth, we must do a number of things. We must make returns on our investments, we must protect our investments, and we must limit our losses. While all three aspects work in tandem with each other, there are times when focus must be given to one specific approach.

Regarding the current technical setup, I'm not so focused on the 67% chance that these wedges will break to the downside, but more so the impact of each outcome on the average Joe's portfolio and mom and pop businesses.

The S&P 500 and the Dow are approaching long-term resistance lines that have been in place for decades. If we do break to the downside, which I suspect we will, there could be a very significant sell-off with consequences that no one can predict at this point, though I mention some potential ones in the chart above. Alternatively, there is significant overhead resistance in the various indices, and I don't believe an upside break would be too monumental.

That being said, I always like to keep an open outlook and wait for the right opportunity. I'm trying to think of scenarios that would preclude further upside action, and I really am not coming up with much.

If you liked this article you might like

China Has Gone on a Gold-Buying Binge, Despite Its Enormous Debt

Fed's Easy Monetary Policy Has Masked Deep-Rooted Economic Problems

How Will Your Investments Hold Up in the Next Financial Crisis?

Silver Will Be a Top Performing Asset in the Next Financial Crisis

Here's Why You Should Buy Green Bonds