This from my friend Fred Goodman at http://www.marketmonograph.com/
"The charts of most indexes are pretty much the same, as they move up and down within the narrow trading range that has confined the market for three weeks. The QQQQ flag is an almost perfectly flat rectangle with two highs at 44.65 and 44.73 and two lows at 42.88 and 42.90. It covers a total of 4.3% from top to bottom.
Thomas Bulkowski in his Encyclopedia of Chart Patterns pointed out that most rectangles end up breaking out in the direction of the trend that was in effect before it formed. This conforms to the findings of Edwards and Magee, who found that roughly 2/3 of flags, pennants and rectangles were continuation patterns rather than reversals.
Bulkowski discovered that the rally following a positive breakout generally continued in that direction and produced a minimum gain equal to the height of the rectangle, or in this case 4.3%. He also found that if the final passage through the rectangle reversed before reaching the trendline, the breakout was almost always in the new direction. So if QQQQ moves up today and reaches its upper trendline, it is likely that an upside breakout will follow.
These are interesting findings, but we must keep in mind that they are average findings -- nothing is ever etched in stone in the stock market.
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I've been keeping an eye on this pattern for some time, and have written on it before. But now we are imminently approaching a major 50% retracement test on the S&P 500 Index (SPX) (SPY). Take a look at the following Weekly Chart, which tracks the 2007 high to the 2009 low and places Fibonacci retracement levels on it:
So 1,121.44 is the exact 50% SPX retracement level (we closed at 1109.30 on Monday night). Besides being an important Fibonacci sequence number, this is also a generally known area of potential trend reversals. Keep a close eye as we move in on this area ... we certainly could overshoot to the upside due to the market strength, but it definitely is a likely area of a market reversal lower (at least back down to the 1,000 area).