- New Science in old markets -

Equities update and a note on bonds

There have been some new bottom extension signals in Equity indices, particularly in some national markets of Scandinavia, central Europe and Spain:

Swede, Aust, Spain bott

We called a halt to our bear campaign in the October 12th edition and also advised some buying of new long positions. These new bottom extensions reinforce that view, even though they are in relatively minor markets. Meanwhile, there have not been any new bottom signals in the main US indices. This is not surprising as they have not made significant new lows and the Nasdaq even held above the lows of October 11th in yesterday's early drop. There have been some sector signals though:

Trans, Energ, Mater botts

The bottom signals reported in that October 12th edition are still 'in date' - here is an update:

Dow,Nasd, FTSE bott extend update

So these new signals from Europe and the US sector confirm the idea that these various equity markets are 'sold out' for now and that we should expect further bounces. To put this into context, none of this changes our longer-term expectation that US equity markets are essentially range-bound, as we forecast back in January this year. In the interim, we have been bullish and bearish by turns as the range developed, calling for a bear market only in China in the June 20th edition. Otherwise we have maintained our view that prices are stuck. They still are, which means that any profits must come from trading shorter-term move within the range or waiting for it to break. That could be a long wait as we also pointed out in the July 5th edition so it has been much more profitable to shorten one's horizons.

Elsewhere, we reported bottom extensions in the US Treasury markets (actually tops in yields, but it is the same thing) in the October 8th edition. We warned at the time that a bear market was in progress, so not to expect too much in the way of rallies but there is more potential for (some) European government bonds to rally and that has been the case in both Bunds and Gilts. These signals are getting a bit old now, so if you bought any of these instruments, it might be time to protect your profits, even though we do not yet have countervailing 'sell' signals. Here is an update to those Treasury yield charts plus one of the Bund futures price:

30 & 10 yr yield top ext updt

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