Since July the Industrials have exhibited the wave pattern we have called “surge, drift and flush”.  This has been very descriptive, and useful.

Now the pattern appears to have changed.  The present pattern developing after the last surge has passed beyond drift into an uncertainty pattern perhaps better described as a rectangle.  Except that it is very unruly with some broadening aspects.  And daily range has shrunk noticeably.  This shrinkage, or coiling volatility will soon beget explosive volatility.

If we were to continue to looking at this as drift we would have 20 days, with some higher lows and higher highs, in fact a higher high that when the drift appeared to begin.

Taken with the fact that the trendline starting in March is being broken extreme alertness is called for.  Frankly at the crack of a twig we would start hedging, but looking at the major indices and ETFs we don’t see any twigs cracking.  So we’re doing what good technicians are supposed to do, waiting for trailing stops to be hit.