The prolonged wrangling in Italy over whether they should have a government or not produced a number of fear-driven market flights. The usual 'haven' currencies all went up and so did bonds issued by governments that are more likely to repay them. Oddly, gold didn't budge but stocks all dropped by varying amounts. This incident shows that markets are in a highly nervous state and vulnerable to more such moves in the near future - the Italian situation hardly came as a surprise, after all.
Nonetheless these moves provoked bottom extensions in many of the assets that had been sold off and top extensions in those that had been bought, indicating that this little panic is at or near an end and that we should 'fade' some of these moves. Bonds first:
If you bought these on the advice in our May 16th edition, this is the time to take profits. Hopefully you were able to take advantage of yesterday's 'spike' highs to get out but if not, please exit as soon as you can. We will try to find a place to sell short too, but any rally will do. If you see one, don't wait for us to point it out. Currencies next:
We have been saying since the May 24th edition that the dollar was getting over extended and now these signals have arrived to confirm that. Previously we inferred this condition from some signals in the Euro and £ against the Swiss Franc which was a week premature, but these signals in the actual pairs mean that we are happy to maintain our long positions in the Euro and £. You can add a $ index short if inclined.
Stocks. The main drops in this 'Italian crisis' have been in the Mediterranean markets, acronymed as 'PIGS'. All extended yesterday, while no other indices did except Malaysia (not shown) where they have their own scandals to worry about:
These tends to confirm the view that we have expressed for five months, that stocks are in a range. All are vulnerable to an eventual downward break of the range, but the way to trade such conditions is to sell high, buy low and take any reasonable profit when it presents. We took profits on our short positions in the US and Europe yesterday and will now pause with a view to following our own advice soon - we do not think it wise to buy the 'PIGS' yet but the other European and US indices are not (quite) at the low boundaries of their ranges. We wait.
All signals courtesy of software supplied by our friends at Parallax Financial Research www.pfr.com