The chart patterns are so bullish right now, aren't they?

I can understand why everyone is bullish after the recent rally. After all, the charts just look so darn bullish! However, back in 2002, we saw this kind of market action right before the start of a drop to new lows, so I'm not convinced that the bullish crowd will be right this time.

The two charts above are both daily charts for SPY. However, the one on the left is from 2001/02, while the one on the right is of 2008 through today. Notice the similarity in structure. In both cases, the market experienced a sharp selloff, followed by an equally sharp rally. Then, the market sold off lightly, forming what appeared to be a cup-and-handle base, ready to blast off to new highs. So far so good.

Look what happened afterwards, however, over the next 6 months of 2002: a very sharp 35% selloff into new lows. I think with the bullish sentiment that we're experiencing now increases the probability that we see a similar followthrough over the next weeks/months.

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