I scan the various sector charts to see if any of them provide clues about the eventual directional breakout of the major equity market ETFs from "The May Coil" pattern. One "coiling" market is the Financial Select SPDR ETF (XLF), which has been traversing a contracting range since its high on May 7 at 13.15.

This pattern reflects a classic series of lower highs juxtaposed against higher lows, which when perched atop a major upmove usually breaks out to the upside within the profile of a bull flag continuation pattern. Such a scenario will require the XLF to climb above its prior rally peak at 12.19, which should trigger upside follow-through to a measured target zone of 13.40/60. Conversely, failure to hurdle 12.19 followed by a break of support at 11.57/51 should trigger a nasty liquidation of entrenched holders of long positions – that drive the XLF to 10.00.

Mike Paulenoff is a 26-year veteran of the financial markets and author of MPTrader.com.