- New Science in old markets -

Review – equities, the $, bonds and more

We have reported signals that show an imminent end or pause in the trends of US equities, US and European bonds, most $ currency pairs and gold. The signals have all been extensions - tops in the case of equities, the $ and bond yields and bottoms in the case of gold and bond prices. These signals have been occurring and re-occurring for over a week now and there has been no obvious turn-around or end to these trends. This reflects the difficulty of analysing markets that have been so distorted by the long-term presence of central banks as big players that the normal ebb-and-flow of mood-driven surges is not such a dominant force.  It is still a major influence though and top extensions are a strong signal, even when  repeated.

US Equities first:

us-indices-top-ext-update

These two important far-East markets have also made very recent top extensions, reported here for the first time:

china-and-japan-top-exts

European stocks have mostly not joined in the rally and we are now starting to see some compressions, so a move is imminent. This is the Dow version of the German index:

german-index-comp-exth

This all seems to mean that there will be a pause or dip in the uptrends of US and Asian equities that will probably lead to some weakness in Europe. 'Selling the break' when prices move down from a compression is dangerous and it may be better to wait for that break and then to sell a subsequent rally as and if prices return to it. For now we prefer to concentrate on defending existing short positions in the Nasdaq and the FTSE, keeping some capacity empty in case there is a need to sell the German DAX or European Eurostoxx too. We have not yet sold any Asian markets short and they too may offer a good chance in the very near future.

In the currency markets, the $ has moved higher since Mr Trump's probable victory (there are recounts in three marginal states) and the $index has extended several times. Other currencies have also gained against the Yen and this has now become cheap enough to generate extensions - the second chart shows how many Yen a Euro can buy. These extensions mean the same thing as those in equity markets - a pause or reversal is likely:

index-and-yen-euro-exts

The situation in gold is similar. Bottom extensions began ten days ago, followed by a pause in the downtrend and then another drop and new extensions.

gold-extensions

Repeated extensions are obviously dangerous as the market may travel quite far in the existing trend before any reversal occurs and in this instance we bought gold at around $1220 but hit our protective stop so we are not long anymore. The signals still point toward a reversal of the drop however - if you are still long, hold on.

Lastly, bonds. US prices and yields and some European prices made extension signals, starting ten days ago. These have continued and there may now be the first signs of a reversal occurring. If you bought, stay long.

ten-yr-yld-30-yr-px-btp-exts

These are trying times for those of us who like to be a little contrarian  - an initial market 'wrong move' can go quite a long way before the expected reversal occurs. We are keeping positions well below their maximum size and will try to find places to add, as and when the markets start to move in the directions that these signals indicate.

More soon

All signals courtesy of software supplied by our friends at Parallax Financial Research www.pfr.com