- New Science in old markets -

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There have been a number of top extensions in European general and sector indices in the recent past, all of which are still ‘in date’.

The following four are the main examples, the first of which is made of European Industrial stocks without the UK. This should not be comforting for UK investors however as the index that does include British companies extended at the same moment. Note that healthcare extended a bit earlier and also stopped going up earlier:

A European ‘tech’ index also extended at the same time and has also extended at a weekly scale:

Regular reads will know that we have wanted to sell the equity indices of the Southern fringe for some time now, to join our outstanding ‘short’ advice in US markets and this is probably the right moment. There is a slight but marked tendency for stocks to rise during the end-year period and so it may be better to sell ‘scale-up’ into any available strength - if there is any. The little rally over the last few sessions in these indices may be all we see however, so don't wait long.

The principal worry here concerns an index that we have been following for a long time – the Dow Transport. This has been compressing at a weekly scale for many months, promising to break one way or another and then re-compressing. It firmed in the last two weeks and has now pushed above those compressed levels – seemingly a break upward:

It is however still trading in the range that has confined the price all year. There seems to be a good chance that this range will continue a while longer but this index offers a good way to limit risk. If last week’s highs are broken conclusively, we will advise getting out of US shorts and maybe these fresh European shorts too.

Elsewhere, grains have been weaker and wheat particularly so. It has made several daily-scale bottom extensions in different delivery months during this drop and now there has been another – this time in July delivery:

This will be small comfort if you already bought some on earlier extensions, but it does still mean that this decline is overdone. We will watch carefully and advise further as we go. Corn can still be bought too, and by inference probably soy also.

RE