Friday, December 11, 2009


I mentioned the coil on the oil chart a couple of days ago. We have the same thing happening on the weekly chart of the S&P.

As I've discussed before the initial move out of a coil is usually a false move that is soon reversed and followed by a more powerful and durable move in the opposite direction.

Probably the worst thing for the market would be for a break to the upside. That would probably get the bulls all lathered up but if the odds play out, the move would not last and would be followed by a much stronger move down.

The durability of this cyclical bull would be better served if the market would break lower out of this coil as the decline should be short lived although it is often sharp.

We are still awaiting the correction that should follow this second leg up. Historically a move down in the -10% to -14% is expected.

The correction of the first leg in July racked up a -9% decline. Usually the correction of a second leg tends to be a little more severe so I'm guessing we should see at least a 10% correction when it comes.