- New Science in old markets -

Bubble watch – this could be the start

Stocks suddenly strengthened this week and this has pushed prices above many of the compressions that have been forming. Some examples, firstly in the FTSE, where it was reported that fund managers are quite underweight, so a rally was unsurprising:

FTSE comp breaks

Next, the S&P tracker SPY which also pushed above recent compressions. In this case, as with other US indices, the weekly-scale versions have formed repeatedly and are only now apparently breaking upward:

SPY Comps

This means that cautious traders will wait yet longer for a confirmed break. The adventurous can jump in and buy now (we did) but there is some risk that prices will just resume range-trading and that another weekly compression may then form.  There is one further reason for a little caution here as seen in these two Nasdaq indices, where a weekly compression break looks bullish but an old daily-scale version is providing resistance hereabouts:Nasdaq comps

To summarise - the US equity markets need to demonstrate a little more strength to overcome the few remaining shreds of resistance in order to turn this promising set-up in to an actual move.  We already bought some and plan to buy more once some confirmation has developed - more strength in other words.