SMI Education: Coils, Coils and More Coils...

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Coils and Trends

The chart pattern(s) everyone is watching
July 15th, 2012
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Hello:

As we sit here going over the charts of the 25 or so major futures markets in the US, we are struck by the stark differences between markets. Either a market is in a serious coil or it is in a run-away trend. There seems to be no in-between. Take gold and silver for example - the coils illustrated in the charts we've been sending out the last few weeks are still intact. Compare that to, say, the grains that are in runaway trends. Take the EC vs, say, the S&P - the EC is in a strong downtrend while the S&P is still in a coil on the daily charts and an uptrend on the weekly charts.

There are a lot of US related reports this week so we are simply going to stand aside for the most part and see where things stand at the end of the week. We'll most likely be taking a few scalps here and there on an intraday basis. But, generally, we'll let our automated systems do their jobs and stand aside on a discretionary basis in most of these markets.

Please note: We sometimes send out real-time updates via twitter: If you wish to receive these updates, simply follow us: our handle is structuredmkts. (http://twitter.com/#!/structuredmkts)

S&P: A couple of viewpoints.

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The ES is in a daily coil but but a bigger picture view shows us still in an uptrend. Until the May low is taken out, the trend remains up. The chart below was sent out last week showing the uptrend and the "power-buy" set up that is still being played out in the bulls-vs-bears battle. Even though the sell-offs have been relatively deep they've been met by buying at oversold levels that keep the up-trend intact.

As mentioned last week, IF the low of the power-buy structure is taken out then the market will officially be in a down-trend. In fact, longer term traders or those using longer term vehicles such as IRAs can hold longs or add to longs with a hard STOP below the "power buy" structure.

Below you can see the a chart of the SPY ETF illustrating the bigger coil in the S&P.

Lets put this in a larger context. Below is the weekly chart:

This bigger picture chart shows us holding at the upper end of the uptrend that started in 2009. At some point, the consolidation will break and history will then show this coil as either a continuation pattern or a part of a distribution top. Until that happens, we have to respect the uptrend that is still in place and a market that, so far, hasn't really broken through any significant support.

Coils

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Lets just take a look at the coils forming in some of these other markets. These are the markets that have the most potential to create significant trends in the later part of this year. Just because "nothing is going on" is not a reason to take our eyes off of them.

Gold:

Silver:

Crude:

The above chart for crude shows two sets of trend lines. This is because both sets of lines are valid. Usually, the white lines were drawn in first and, then as the pattern morphed, the pink ones were drawn in. We like when the patterns morph into new patterns with horizontal boundaries. The same thing is occurring on the cocoa chart below.

Cocoa:

The Trade(s)

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S&P: Trade to the long side on an intraday basis this week. Given reports and earnings out this week we advise caution on overnight trades. Since we are still in an up-trend, the 2-3 day cycle still applies: any two days down and you should look to trade from the long side overnight and/or the next day.

GOLD, SILVER: No trade - wait for breakout from the very large chart formation.

SOYBEANS, CORN, WHEAT: Runaway train - at this point, best to wait for a daily oscillator to pull down. Chances are you're going to get a few limit down days once we get some rain in the forecast.

Important Risk Disclosures and Legal Disclaimers - This stuff is important!

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First you should realize that PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS! The risk of loss in trading commodities can be substantial. You should, therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The high degree of leverage that is often obtainable in commodity trading can work against you as well as for you. The use of leverage can lead to large losses as well as gains.

Coming Soon

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Over the last two months we have received feedback on the types of products that you would like to see. We are going to be substantially revamping our service to align our product offerings with the feedback we've received. Stay tuned and keep your comments flowing!

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