The world’s stock markets have mostly had sharp rallies in the last few days. These have been fierce enough in a couple of cases to make us think that short-covering is the most likely cause and sure enough, there have now been fresh compressions in REITs in the US (at a weekly scale) and in the Nasdaq, meaning that the trend is uncertain and that markets are still balanced on a knife-edge in the longer-term,:
The long positions that we advised in the February 4th edition are now nicely profitable but we think that weakness will eventually resume. The logical place to sell these longs and reinstate longer-term short positions will be if we get top extensions (unlikely, for now) or if we run up into the resistance shown in the SPY chart above (very likely) or if we run up into a turn day. These are few and far between at the moment, as is usual in the early part of the year but there is a possible date approaching on Friday the 14th February. This marks a medium-sized cluster of turns in Europe and the far-East that may mark the high of this rally – we will watch carefully and report. In the meantime, if more strength occurs in the next few days and the SPY is at or near 182, take profits on all longs in the US and Europe.
Hang on to longs in far-East equity markets for now. You may have followed our advice and attempted to short-sell Chinese equity indices on the re-opening of that market on Friday. If so, the market rapidly ran up to and above the level where we recommended placing stops, so the position would have been very short-lived:
Energy prices have also rallied, along with other commodities. We did not recommend buying crude, Rbob etc but merely suggested copper, cotton and some soy. WTI broke up from some compressions that we reported on the 3rd February, and if you bought that break, take a quick profit. The reason is that these energy contracts are all stiill compressing at a weekly scale, so the longer-term trend is unknown:
Rbob made a daily-scale compression on Thursday, which broke up on Friday. Again we 'waited this out' and there was indeed a possible trap forming as a weekly-scale compression appeared last week, meaning that the larger-scale trend is unknown here too:
Gold did eventually break up from the compressions reported in that same edition and you should now be long, for a ‘trade’. We are not bullish in the longer-term but bounces in Gold at this high level can be sharp, so we advise holding on for a bit.
Lastly, the $ index has compressed at a daily-scale. Pressure is obviously building up in financial markets again, so expect some more volatility again soon.
More as we see it.