RUSSELL COIL

 I’ve looked at these many times in the past but we have another example today that may be worth taking note of.

The Russell 2000 just broke higher out of the recent volatility coil. Admittedly the coil was a bit sloppy which may call into question the validity of the signal. But as I’ve noted in the past, most of the time the initial move out of one of these coils tends to be a false move followed by a more powerful and more durable move in the opposite direction.

Considering that we are now very late in the daily cycle (among other things) this might be worth watching for a potential reversal as the market moves down into the now due cycle low.

72 thoughts on “RUSSELL COIL

  1. Anonymous

    We see the Euro trading lower at 1.341 & Dollar trading stronger this morning at 81.57 over concerns about European sovereign debt issues.

    Maybe this will give the markets its ‘excuse’ to correct.

  2. Anonymous

    Gary —
    Are you looking for a a minor correction that holds the breakout instead of testing the early-March gap up?

    Thanks

  3. pH11

    Gary –

    Wondering if you can give another example of a coil, followed by a breakout, signaling a false breakout with a more powerful move in the opposite direction.

    Would you consider Jan 2010 such an example? Market coiled from Nov17-Dec17, then shot up vigorously on the 21st of Dec. It then continued higher until Jan 11th, when the market dropped 10%.

    If this is a typical example of what you’re referring to, then the next 2-6 weeks should be the strongest upwards push, before a large cycle descent begins.

    What do you think…

  4. Anonymous

    Considering the dollar action, it’s hard to imagine the gold action being more bullish.

  5. Gary

    Yes it is pretty obvious that the 24th did in fact mark a stretched daily cycle low. Now if we can just get through a stock market correction it should be time to add some miners.

  6. Anonymous

    Gary
    When you say stock market correction, what are you implying? If you are looking for oversold conditions in RSI 5, it seems even a 2-3% slow move down to 1160 in S&P could get us to oversold condition. Is that what you’re looking for?

    KK

  7. Gary

    What happens when we get a move like this is that traders become conditioned to buy every dip. They become complacent. The level of put buying collapses as traders don’t feel the need for protection.

    That’s exactly what’s happening now. Yesterday the put/call ratio was skewed to some of the most lopsided levels in the last 4 years.

    Basically there is no insurance against a market decline so once one begins no one is hedged against it. The easiest way to reduce losses is to sell positions. Usually that happens all at once as everyone heads for the door at the same time.

    It’s why these things typically end in a big whoosh down.

    I’m not going to try to pick a bottom technically. I think we’ve all seen that that strategy by itself isn’t particulary successful. I will just watch the buying on strength data and sentiment levels for some idea of when we might be near a bottom and then I will add in technicals.

  8. Anonymous

    Gary,
    Logically, what you say makes sense – but even you acknowledged the fact that the final leg will be driven by retail jumping head first (and this results in parabolic moves). I am already seeing lot of stocks just rocketing up 5-10% and extremely skewed equity Put/Call which makes me wonder whether the music can continue for a while before the sharp correction you mention can play out, as retail seems to be participating in a big way here.

    KK

  9. Gary

    Certainly it’s not a perfect timing tool (what is). But the coil is also suggesting there is limited upside at this point and any that we do get will probably be given all back in the near future.

  10. Anonymous

    Just an FYI:
    A trader whom I know uses Cycles and was able to nail every single top/bottom (using cycles) so far off March 2009 bottom, completely missed this up move. His cycles work indicated top early march and down move for couple months – clearly didnt play out. he says the situation is resolved by sharp move down/crash of 10-15%, but im not sure with such breadth that a correction would be more than 5-7% here. The last time there was such a major divergence in his system was late jan/feb of 2009, when his cycles indicated bottom in jan 2009, but prices diverged significantly till march 2009 and was resolved by upward meltup till mid-april 2009.

    KK

  11. Gary

    As anyone who’s been in this game for any amount of time knows, no system works 100% of the time. And anyone who tells you their system does, don’t walk, run away as fast as you can πŸ™‚

  12. Marc

    Using the market action of late 2008/early 2009 to infer future moves probably isn’t the best as it came with far more emotion than usual. Plus typical market moves don’t have such drastic government intervention like the change in mark-to-market. Any cycle can be altered if there is enough sentiment or government meddling involved. The longer term cycles are more reliable IMHO.

  13. Anonymous

    Now, sorry to say, but that’s a foolish lie. Attila has been wrong practically all the time since the March 09 bottom. He stayed bearish and saw his ‘fans’ disappear from his blog week after week. I think the last time he was right was during the crash of 08. To claim his system works is simply bs. Who ever followed this guy must have lost a lot of $.

  14. Anonymous

    Anon
    Atilla’s system worked 110% of time – it worked 26hrs/day and 400 days/year, even when markets were closed.

    KK

  15. Anonymous

    Once again, it is very clear money is fleeing treasuries and immediately entering risky assets. FOMC minutes comes out, treasuries slammed, stocks pop. Now with the massive treasury issuance tomorrow and day after, any weakness in auction and we SPX 1200 will be breached with authority.

    KK

  16. Anonymous

    Gary, if gold breaches 1160 or so (the couple of month’s high), then are still in a c- wave or will it be an a-wave which we couldn’t spot? Or are we still in a d wave until we breach that 1160 mark?

  17. Gary

    I think we are probably in an A-wave but I can’t be sure.

    No C-wave has gone through a consolidation this long and no C-wave has topped later than early May. Unless something is happening that’s never happened before I have to doubt this is a C-wave.

    It’s pretty tough to bet on something that’s never happened before.

  18. Anonymous

    So that means we are pretty much stuck where we are for almost 3 months now, that is we have no idea of what’s going on? So exactly when do we get in? The way things are going at the moment, we might as well test 1226 or so and still not be sure if it’s a a wave or c wave nd still be out of position… Please guide

  19. Gary

    LOL if I could see the future I would be the wealthiest man in the world.

    In case you haven’t figured it out yet there are no sure things in this business.

    As long as you are willing to just hold on I am confident the secular bull is far from over. So you could just go on with your life and ignore the market. By the time this is over your metals positions should be up huge.

    Of course that doesn’t help you with next week or next month.

  20. Anonymous

    Gary,

    USD is not going up! Euro is falling. You analysis of a bull in USD is not true. Look at any other measure of how the USD is calculated, the USD has been falling. UUP is probably a short attempt by the FED to keep things looking good. You truely are missing the big picture right now! If you are stuck on the UUP or the stupidly calculated USDX you will miss the boat. This is the first time this factor has come into play….Ie Euro tanking……You are way off at this point, and I am not happy to suggest this. But your lack of knowledge of currencies beyond the USD has thrown your current analysis out the window. Be big picture or a trader…you won’t be both. These are my final comments. Good luck to all.

    T.

  21. Gary

    I think we all realize the dollar is going up only because the Euro is going down. If the dollar was truly strengthening oil wouldn’t be over $80 and gold wouldn’t be over $1100.

  22. Anonymous

    Gary– Is there a monthly moving average that gold should hold? The 2006 D-wave held the rising 14 day while 2008 D-wave blew right through it (2008 is a bad example as we know).

  23. Gary

    Throughout the bull the 75 week moving average has contained all D-waves except 08 which was an 8 year cycle low.

    Usually an A-wave is pretty explosive because they come from severely oversold levels created by a D-wave. Most A-waves have tended to run their course in about a month and retrace 62 to 95% of the D-wave correction.

    This entire cycle has been very unusual. The D-wave unfolded very slowly and never really got severely oversold. And if this is an A-wave it’s also unfolding very slowly.

    If this is somehow a C-wave continuation then it’s not only the longest on record but the C-wave would have to top in mid summer which is later than any other C-wave.

    If we were in the final stages of the gold bull I would ignore seasonality as I would expect momentum to roll over every other consideration but we certainly don’t appear to be anywhere close to the end of this bull.

  24. Anonymous

    $USD up and so is gold. I believe gold will continue up regardless of dollar direction from here forward. I don’t think you’re going to get your pullback for a much better entry. I think the risk is being out of gold, not in.
    KB

  25. Anonymous

    So if this an A-wave, we should be looking for $1160-$1220 as targets. If it is continuation of the C, who knows…?

  26. Gary

    We always get pullbacks as there is always a cycle low.

    The risk is for a market minicrash like in 07. We have the same conditions now as then. That crash took gold down 8% and miners down 15%.

    It had nothing to do with gold or miners and everything to do with massive selling pressure coming off the stock market.

    I prefer to let the stock market correction run it’s course and then enter.

  27. jg

    “…This entire cycle has been very unusual…”

    Gary, would your cycle analysis make more sense if you permitted that there has been Fed/Treasury/foreign central bank intervention, to cap the rise of gold? Would the pieces of the puzzle fit together better, then?

    I think that the Fed/Treasury have been desperately tugging at the lines, trying to keep the gold ‘balloon’ from taking off.

  28. Gary

    I would say that’s probably ridiculous. The dollar has just been rallying very strongly. Gold usually suffers a correction in that scenario.

    Besides any tampering will only result in much higher prices much faster than would occur naturally.

  29. jg

    “…Besides any tampering will only result in much higher prices much faster than would occur naturally…”

    That makes sense, but does not stop them from tampering in markets for mortgage interest rates, short-term interest rates, long-term interest rates, currency exchange rates…

  30. Gary

    Yes and we see how well that panned out for them.

    I just don’t buy this nonsense about gold manipulation. The powers that be have much bigger things to worry about than the price of a shiny piece of metal.

    Now certainly big traders may try to swing price at times for their benefit, either to run support and allow them to take positions or break through resistance and allow them to unload positions but that happens in every market.

    When asked about possible manipulation both Jim Rogers and Marc Faber scoffed at the notion. I also don’t think Soros and Paulson would be heavily invested in a sector if they thought the governement was controlling it.

  31. pH11

    After starting around Feb8th, gold is now in its A-wave. Gold is still on its way to 1186 (minimum) before beginning its wave back down. It will peak after hitting 1186 ‘around the time’ that the market is either low or consolidating before a big rise. This happened over the past few A wave conclusions. I’ll be watching for a moving average crossover to trip the stop loss at that time… but until then, Gold’s going higher.

  32. Anonymous

    Gary,
    What is your thought on interest rates (10/30 year) , since interest rates and gold are interlinked?

    KK

  33. Gary

    I’m not sure why you think gold and interest rates are interlinked. They are each driven by their own fundamentals.

    FWIW I think bonds have entered a long term bear market.

    Gold is still in a secular bull.

  34. Anonymous

    Crikey, it looks as though miners and gold will never pull back. I want to add, but waiting for a pullback is testing me patience!

  35. Anonymous

    And if the crooks already own all the gold, why would they want to keep prices down? It don’t make no sense.

  36. Gary

    You could always add, just don’t get knocked out if we get a correction.

    I will say that big gap on GDX still has me nervous.

  37. Frank

    My PM focused trading portfolio is now higher than on Dec 2. Score one for Old Turkey.

    (The reason that I am higher is some options trading at the margins and NGD.)

    I am going to do some selling today, however.

  38. Frank

    One reason that I didn’t sell on Dec 2 is that I had a lot of shares that were just short of one year holding.

  39. Anonymous

    One thing that I did right this year is to move 30% of my account allocated to only juniors to a separate account that I called ‘Old Turkey’. I am not going to touch it no matter what (at least that is the plan).

  40. Anonymous

    Hi Gary, I’m using my favourite trading tool here (hindsight) but do you think the recent action in gold is potentially a bull flag which would mean a potential for a second leg of the T1 pattern dead ahead?

    Cheers,

    Alun

  41. Anonymous

    This is obviously an A wave as soon as 1160 falls (should be this week or next week. Its then a question of 1228 breaking to make this a vicious C wave or just topping at that level to make it a wobbly A wave. Gold is showing tremendous strength, regardless of what the stock market does here…it has decoupled nicely from the dollar, Im not sure why people think it would follow the market down.

  42. Anonymous

    And if so, would it not suggest a target of approx $1650? Which coincidentally is also Jim Sinclair’s target?

  43. DG

    Large money flow into SPY’s today. We are obviously not at any kind of a low as it’s the first day down. Is the reading therefore irrelevant?
    Thanks, gary.
    DG

  44. Marc

    We had some pretty good buying on weakness at the end of the day. I would tend to think this is the effect of the “buy the dip” mentality which I’ve seen all over the place lately. A real correction will have to have some fear in it so it doesn’t just get blown off as a buying op. I guess the next week or so will tell…

  45. jg

    Very nice update tonight, Gary: clear, convincing, and actionable.

    Your plan for reentering miners makes sense.

    I am short RUT as of this afternoon, and am keeping my fingers crossed to make some money over the next week or so.

  46. Anonymous

    Gary–
    Interesting to note we have a swing high in “everything” except HUI/GDX. So far, albeit early, PM’s are resisting the equity selloff.

  47. DG

    Was this a dumb question? (posted 4/7 a.m.)

    Large money flow into SPY’s today. We are obviously not at any kind of a low as it’s the first day down. Is the reading therefore irrelevant?
    Thanks.
    DG

  48. pH11

    Hey DG –

    I’m wondering about how you define MoneyFlow? The Money Flow Index (14) has been decreasing pretty steadily since mid-March for SPY.

    And I don’t think we’re at a low yet. Most indicators point to the fact that we’re still overbought. But of course, remaining in overbought territories most of the time is characteristic of bull markets, especially strong bulls…

  49. Anonymous

    Gary is MIA? I guess he’s in pain since he got thrown off the gold bull. He should have listened to his own advice and Old Turkey.

  50. Gary

    I’ve been out climbing all day.

    Trust me if this does or had turned into a nasty D-wave you don’t want to hold through one of those. In hindsight its easy to say you should do this or that but we really don’t want to ride a D-wave.

  51. Anonymous

    Gary,
    I think the market is doing a walkover. I don’t think the market is concerned with cycles at the moment. My guts tells me that we are now entering a final run up and exhaustion phase; instead of a slow grinding higher, it will accelerate. The market ‘knows’ that there will be bad news coming some time in the summer and thus the market knows it’s got only a few more weeks or months to run. By late May or June the party might be over. I think we’ll see 1300 on the SP by then, or more. I am long and stay long and plan to step aside late May or early June. However, I’m going to stay close to the trigger if something happens that will change my view in the short run; but I have the feeling we might have the second best part of the rally just ahead of us.

  52. Gary

    I do think we are going much higher but sentiment is so wildly bullish right now that we are probably going to have to get a big scare during earnings just like we did in Jan. before we can go much higher.

  53. pH11

    I think that the graphs of silver miners and silver is quite telling. SLV and GLD both had an EMA 10/50 crossover (30 minute intervals) on the 26th. SLV had a huge gap up on the 27th. Since then, CDE and HL are both up – CDE being up over 20%. I think we should pay more attention to those crossovers, and even alert one another…

  54. Anonymous

    i just sold a few options .. some stock … personally, everything is way overbought, and ripe for either a 1) correction or 2) Some sideways movement …

    Plus, at this point, until gold breaks 1161$ I will assume it will go back and test 1100$ .. but again, what do I know …

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