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Equity top extension update, Rbob joins in. Swiss mkt very extended

The flurry of equity index top extensions that we have been reporting in recent editions has continued:

We also now have one in US gasoline futures. This has an on-again off-again correlation with US equities which is currently quite strongly positive, so this 'end of uptrend' signal adds to our bearish inclination. If long gasoline from the break of the compression shown here, exit now. Think about trying a short-sale too although it may be better to sell crude or heating oils - all will probably move broadly together.

There is a slight negative correlation between these ‘main’ energy futures and those of Natural Gas - apparently the saviour of the US economy, thanks to fracking. This will add some support there. We are watching for a longer-term signal in Nat Gas and will advise.

The occurrence of equity index top extensions has spread to other world markets too, as reported. Here are updates on the UK and a previously unreported German signal. There are some weekly-scale top extensions too and here are those signals from Switzerland and Australia – this last has already extended at a daily scale, as reported. The Swiss market has been pushed up by a combination of factors, pre-eminent of which is that country’s unwilling current status as a ‘flight haven’. This cannot be good for the Swiss economy at any time, especially now that the authorities have declared their unwillingness to let the currency appreciate. They have no good choices here, so this market might be particularly vulnerable now. We would add it and the UK to our list of candidates to short-sell.

Longer-term, it still looks as though a bigger up-move has begun in many equity markets, as shown in the US by the upward break of weekly-scale compressions in the Dow transport index, as we warned in the December 27th edition and subsequently. Accordingly, any weakness from hereabouts should lead to fresh buying opportunities later on. We will of course advise when we think it advisable to cover these short sales and reverse into longs. In the meantime there may be other short-sale candidates that we can identify - we are looking at Southern Europe again, including France. If bold, sell them now.

RE