There was a Dow Industrials turn due last Friday, the 27th July. These Dow turns are generated by a slightly different method from the usual turns (all developed by our friends at Parallax Financial Research) applied to the 100+ years of data in that index. The effect is to pick out the longer-term highs and lows that occur in US stock markets and last week’s signal seems to have picked out a high point - prices rose into it and have fallen a bit since. We say ‘seems’ because there is another important signal that remains unresolved – this same index and its cousin the Dow transport are both still compressed at a weekly scale - the transport index is also compressed at a daily scale. Weekly compressions lead to trends that usually last for several months and the nature of compressions is that we cannot tell which way the next trend will go - it’s like being on a knife edge.
Although the existing trend seems to have been changed by this turn, as is normal, it is too early to tell which way the overall market will go; it is still range-bound and that is one of the things that a compression signal reveals. The other is that the range will soon break. If you sold short into the strength on the turn day (the sensible, if brave thing to do) then stay short but keep close protective stops. We are watching closely and will advise.
We had advised ‘bold’ traders to sell short government bonds in the US and Germany on the 24th July (at another turn) and US bond prices have dipped back to an old compression, where they found support, as usual. This has not (yet) happened in bunds (the level is shown with a dotted line), so it may be worth trying to stay short here for some more possible weakness.
Grains have rebounded a bit after some weakness, except for the soya oil market, where we advised short sales a few weeks ago. The situation remains the same – there have been weekly-scale top extensions in corn, soya beans and soya meal that will inhibit rallies for some time to come. The risk of selling these markets short remains high, but is diminishing as they show signs of tiredness and the best short candidate is still soya oil, for reasons given on the 18th July. Some example charts with individual remarks:
Copper has rallied a tiny bit and is now weakening a little – all within a tight range. We suggested short-selling on a rally back up to recent compressions so, if you followed that advice, please now place a fairly close stop-loss. More compressions formed after the 'return movement' to those old compressions and those too have now broken down, so the place to put stops is above the most recent group. Energy prices have also rallied and this is more likely to be a problem for bears. The 'senior signal' in energy markets is the weekly-scale bottom extension reported to you in crude oil on the 2nd July. This means that trying to trade from the short side must only be considered an opportunistic 'scalping' activity and it may be that the daily-scale top extension shown in the gasoline chart below has run its course.