The new enthusiasm for stocks has catapulted the UK stock market FTSE100 index far above pre-Brexit levels. As written here and elsewhere, this is mainly due to the 'bargains' that the falling £ has produced - 70% of earnings in the FTSE100 come from other currencies so the roughly 10% drop in the £ has made these earnings look cheap. The FTSE has risen a little over 10% from pre-Brexit levels since the vote six weeks ago, so this has now presumably been discounted. We have also just seen top extensions at a weekly and a daily scale so a pause or correction seems likely from hereabouts:
This does not mean that we think that all stock markets will stop rising. The arguments that we have been advancing to predict a new 'leg' up are still valid (and have just been echoed by some other commentators) so it is just this 'special case' of the FTSE that we think is a bit over-ripe for now. Tactically we would look to take some profits on any further strength in the next day or so - this comes in a week when the first economic results post-Brexit will be released, so there will probably be good two-way movement. We won't advise selling short because other European indices did break up from weekly compressions last week, arguing that the general up-move is only just beginning:
The last chart of the group of 4 above shows a French index that we follow making a new weekly-scale compression last week, instead of breaking upwards like the others. This is a warning that all is not well in Europe but probably only means that the separation between the highly productive Northern countries (i.e. Germany and its immediate neighbours) and the less productive South that began when they were shackled together in the Euro is starting to force divergence in asset prices again. The Dax is a better bet than the Italian or French markets. Spain may be escaping the worst effects of the Union after much pain but it is too early to tell.
Corn made a weekly-scale bottom extension last week while also rallying sharply from two-year lows. This is a convincing reversal from a strong signal and means that we will be trying to buy some. The signal is at a weekly scale, so the chances of a 'runaway' upward move in the next few days are small but still possible. Tactically, we will try to buy dips that get to (or near to) Friday's closing level of 333 in the December contract:
This may lead to other buying opportunities in other grains. We will watch carefully and advise - the global effects of El Nino/El Nina are not yet over.