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Top extensions in US and German Equities. Crude compresses

There were top extensions at a daily scale yesterday in the Nasdaq and Dax indices:

Nsdq & dax top exts

This is not the first time that the Dax has extended in the present rise - the prior signal is also circled on the chart above and that marked the end of one 'leg' up and the start of a sideways period. This is always a possible consequence of an extension - the other possibility being a reversal.

This means that the move upwards in US stocks that started with a break up from the compressions that we pointed out in the January 20th edition (the break happened on Tuesday this week) has already run into trouble. Here is an update:

Spydr comp update

We warned in that edition that any upmove might not last long and it may now already be over. Any long position that you took 'on the break' should now be sold and we will start to explore the short side again. As ever, we should remark that top extensions occur at or near the end of uptrends and do not necessarily mean that a down trend will begin immediately - although is possible. We have already sold short The S&P and FTSE and will probably sell the Dax and/or Eurostoxx soon.

Crude also re-compressed, as it continues to 'range-trade'. Compressions usually occur toward the end of a trading range and signal that the range will soon break or expand. Watch out for whipsaw here as false breaks are common:

Crude oil comp

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