There was a top extension in Dow futures yesterday. This has been the strongest of the US indices in the past few weeks and this extension tells us that the strength will end hereabouts. The rally has been patchy as Nasdaq indices stalled after extensions some weeks ago and the S&P has struggled higher, dropping back after making fresh highs:
A period of weakness is now likely and the short positions that we have been recommending in US and Southern European markets should now produce some profits. The tendency to compress that we noticed in Europe last week has now produced another signal – this time in Spain. That seems to be breaking down right here (today’s price drop is not on this chart) so we advise holding on to short positions in this and the other South Europeans. Spain may have lots of room to fall from here as this old monthly-scale compression will provide resistance to further rallies. There is a turn due today in Stock markets and a bigger one on Monday 25th as warned in the October 29th edition.
There was also a compression in Ten year US Treasury notes and this will probably mark the start of a new trend, when it breaks – don’t forget that tomorrow is a turn day in bonds. We have already suggested selling selected European government bonds short and this may be the opportunity to add the US to that list – we wait for the break: