- New Science in old markets -

Equities – what next?

The sharp drops in equity prices late last week are significant. Many indices have been compressing at a weekly scale for a long while and this drop was a clear break. This is where new trends start, so there will be more weakness:

US weekly comps beak

As usual when there has been a fast movement, we are seeing multiple daily-scale signals telling us that the move is 'over-done'. It is extremely dangerous to act on these signals as soon as they appear because the weekly break is more important and has only just happened. These daily-scale signals are almost everywhere but we will be cautious when trying to buy. The situation in Europe:

Europe stock exts

In Asia, where Japan has not (yet) extended but these four have. It may be prudent to buy some Korea here as the tension on the border has already produced some cheap prices:

Asian bottom exts

In the US and Canada there have also been a few daily-scale bottom extensions:

US equity bottom exts

To summarise - we expect further weakness in equities at the larger scale - i.e. over weeks and months. In the meantime, we expect some bounces to develop but these will be hard to catch and so it is dangerous to do so just because we have some bottom extension signals from Friday. We will try to find appropriate places to do some buying however and it is probable that we will recommend doing some buying in selected markets later today (Monday the 24th August) as a turn is due at the same time as these markets are extending. See the August 19th edition for details. In the meantime, Korea is the only obvious candidate for an immediate purchase due to the already audible 'sound of cannon' - that historically most reliable indicator.