- New Science in old markets -

Bubble watch – a stall?

Equity prices fell late last week as US indices bumped up against previous highs in the 18 month-long trading range and stalled. As this sideways price movement continues in America there is  a well-established shallow downtrend in the Eurostoxx index and prices bumped into this too:

SPDR & Eurostoxx wkly channel

Our proposal is that these two channels will both break to the upside but it is not surprising that prices have stalled here for the moment. There was also a compression signal in a semiconductor index that we follow that broke down on Friday. This Philadelphia exchange index often provides early warning of further developments in the Nasdaq but in this case the tech-linked indices all fell together. The overall effect was to produce another weekly-scale compression in Nasdaq futures, which means we must now wait - there will probably be more range-trading to come before an eventual break (whichever way that turns out to be).

Sox and Nadq comps

The background situation remains bullish, as the weekly-scale compressions that formed in various US indices and then broke upward are still providing support:

Big Nasq & S&P wkly comps

The main element of doubt in all this comes from a few sector-specific measures in the US. There are several that made weekly-scale compressions some while ago and these are still looming overhead, providing resistance. This is the Dow transport index, which is historically very important and so we choose it as an example:

Dow weekly trans comp

Lastly, a Chinese stock market index that we follow has been compressing lately and this has now broken upward. We have moderated our Chinese bearishness considerably in recent months and it now looks as though there will be more strength here, if only in the near term. We cannot trade any relevant Chinese index futures but we would buy if we could:

Chins comp break