Various Nasdaq instruments made daily-scale top extensions in the last two sessions. This comes as no surprise, given the sharp rally in the last two weeks. Here are the futures and the Composite index:
The Nasdaq has made much more headway than any other broad US index and we looked at the likely meaning of this in the April 26th edition - once again it seems that a bubble is inflating in this part of the US market. The current rationale is the imminence of tax cuts and perhaps a tax holiday on the repatriation of cash held overseas by US corporations but this is just an excuse - the market has the bit between its teeth and can go much further up.
The probable consequence of these new extensions is that we will see a pause in the Nasdaq rise for a few days, starting soon. That may also mean more serious weakness in those parts of the US stock market that didn't go up so much. This would be completely in keeping with the last Nasdaq bubble into Spring 2000, during which time the S&P and Dow traded sideways while the Nasdaq doubled in less than six months.
We won't try to sell the Nasdaq but we may try to sell the S&P soon. We will probably also try to find a place to re-buy the Nasdaq (maybe in just a few days time) while this ascent continues. We are acutely aware that this is a bubble and so are nervous of being caught long at the top, which is why we are being so cautious.
Elsewhere, there have been other extensions in the £ against the Yen, in Silver futures and in Heating oil:
It's hard to know what to do with the £/Yen as this probably isn't yet the time to sell the £ against other currencies or to buy the Yen. We will regard it as an early warning and watch out for more signals in related pairs in the days ahead. Some drop in the £ is likely as the rhetoric about Brexit negotiations gets louder and we are watching
The bottom extension in Silver is not matched by any equivalent signals in Gold or Platinum but it is also a warning that the recent weakness in precious metals is unlikely to last for long. A rally coming soon would also fit the idea of a dip or pause in the equity rally as the correlations remain negative, so evidence is starting to accumulate that some equity market turbulence lies near ahead.
The bottom extension in Heating Oil matches one that we have seen in Rbob gasoline lately. There have been three of these, the first of which was reported in the April 18th edition. This means a bounce is probable from around here and we have already advised taking long positions in energy.
We are working on the energy sector, trying to identify which (if any) stocks might be candidates for a bid in this new tax environment but we are not finding much. The only ones so far are Chevron, which has a market cap of around $200bn so is hard to digest and Phillips 66 which looks less attractive through our eyes but is conveniently smaller at $40bn. We keep working and will report.
All signals generated by software supplied by our friends at Parallax Financial Research www.pfr.com