- Coiled Spring Capital Macro Report
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- Coiled Spring Capital MR 10/12/25
Table of Contents
Introduction
Everything is fine—until it isn’t.
That phrase may sound cliché, but anyone who’s spent time on a Wall Street trading desk knows it’s repeated for a reason. It captures the cruel rhythm of markets: risk builds slowly, then hits all at once.
Markets have an uncanny way of lulling investors into complacency—convincing them the easy-money train will keep rolling forever. But as veterans of this business, we’ve seen enough cycles to know how quickly the ride can end, and how painful it is for those who aren’t prepared. Hopefully, our readers were among the few ready for what happened on Friday.
The title of our October 5th report said it plainly: “Risks Mounting?”
That was not subtle—and for good reason. While we couldn’t pinpoint exactly what would trigger a correction, it’s often the risk you don’t see coming that does the most damage. Few expected Trump to reignite a trade spat with China—we certainly didn’t—but we did emphasize, in two consecutive reports, the need to sell strength and prepare for volatility.
On October 5, we wrote:
“...DeMark multi–time frame sell signal alignment could largely materialize over the next two weeks, and that confluence represents a significant warning signal for us—particularly in light of the MSI breadth deterioration highlighted earlier. As always, we’ll wait for price confirmation before initiating any bearish positioning, but this setup provides ample forewarning to raise cash and tighten risk ahead of a potential corrective move.”
And on October 8, we followed up with:
“With multi–time frame DeMark alignment setting up into next week and the notoriously volatile back half of October approaching, we’ll continue to sell into strength and remain highly selective with new long exposure.”
Those comments proved prescient—Friday’s sell-off erased the last 20 days of SPX gains and marked the worst decline since April.
If you recall from our recent reports, we had been hypothesizing that weakness could begin toward the end of last week and into this one as the DeMark daily and weekly signals aligned. Not only was that timing spot-on, but we also gave readers ample warning to raise cash ahead of Friday’s drawdown.
Now, of course, there will always be skeptics who claim we simply “got lucky.” We’d counter that with a simple fact: this is not luck—it’s process. Our system has consistently identified similar turning points over the years. We warned that breadth deterioration, as measured by the MSI, was flashing major caution. We also noted that while markets can stay irrationally strong for longer than expected, a catalyst is usually what accelerates the turn.
We can’t predict the exact headline that triggers a selloff—but we can recognize when conditions are primed for reversion. DeMark signals, by design, are warnings, not predictions. Sometimes they need a spark to activate, and this time, Trump’s renewed trade rhetoric provided that spark. The specific catalyst isn’t the point—the setup was already there. When markets feel too easy, that ease itself becomes a warning. That’s where experience matters.
As we wrote in our October 8 report:
“Experience tells us that when the market feels too easy, it often masks risk beneath the surface.”
We’re not here to pat ourselves on the back. No one can time the exact moment a market turns. But knowing when to tighten risk and pull back the reins is just as valuable—and that’s precisely what we advised in our last two reports.
According to 3Fourteen Research, the S&P 500 was recently experiencing one of its longest stretches in history without a >3% pullback. In other words, the market was overdue—it just needed a reason.
Sometimes the market moves so abruptly and violently that it’s nearly impossible to react with any meaningful precision—to flip from neutral to tactically bearish in real time. But not getting caught flat-footed is almost just as valuable. Preparation beats prediction.
One of the key signals we were tracking for early clues was the health of the semiconductor sector (SMH). As of last Wednesday, SMH appeared to be shaking off the prior day’s weakness, hinting that buyers still had control. However, as we cautioned in our October 8 report:
“It’s important to note that just because reversals don’t happen immediately doesn’t mean yesterday’s move was meaningless. It could very well serve as a precursor to more corrective action…”
That observation aged well. By Friday, SMH fell nearly 6%, slicing cleanly through the two gap levels we had previously identified—confirming that the cracks beneath the surface were indeed widening.
So, there you have it—one of the signals we were watching to turn tactically bearish just surfaced with astonishing vigor.
What does that mean for the broader market? Let’s dig into the charts and find out.
