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Tops in more equity indices and the £. A note on the FTSE and on commodities

There were daily-scale top extensions in two more indices on Friday after Canada's signal on Monday. That first signal coincided with a stall in the North American equity markets and these two new ones in Korea and Holland make it very likely that an end to the general up-move in world equities is imminent:

Dutch, Korean top exts

Of course neither of these is a major index but, as usual we pay attention because the less-examined markets often provide better clues. Once again, we are reluctant to embrace a fully bearish position because:

  • There is no 'turn event' of any size in the next few days (see the turn schedule on the front page) which usually come at or near a significant high (or low) point
  • It is usual for markets to make some kind off 'top' before they can start to fall. That hasn't happened here.

The answer is probably to protect profits on long positions, as we have been advising for the past week and to expect that prices will struggle, even if they don't drop (yet). If you are a shorter-term player, it seems sensible to trade from both sides now - both buy dips and sell rallies for the immediate future. Risk is shifting to the downside here.

The FTSE has not gone up since our 'buy at market' recommendation in the January 15th edition. It has stuttered and stalled, recompressing several more times. In light of these other equity market top extensions, we are inclined to abandon the trade. Here is an update, showing the original compression (ringed) and the return-to-compression that made us want to buy it (arrowed). There have been three subsequent compressions, as shown.

FTSWE return to comp3

There is one remaining reason to hold on to the position (with a very close stop-loss) which is that the £ has extended. It has been rising lately as rumours about the likely shape of Brexit continue to swirl and has now extended against the Yen, Euro and Swiss:

£ extends

This has the usual meaning - this rise in the £ is likely to stall hereabouts which (if it happens soon) would support the FTSE as have most bouts of weakness in the £ since the Brexit referendum. Don't risk much though, as the original reasons for taking a long position in the FTSE have now gone.

We will probably take a short position in the £ in the near future as top extensions in currencies usually don't need a 'top' to form before the market can reverse - a top in one currency is a bottom in another after all and we are quick to act on bottom extensions. We may not advise further on this, so if you see a reason to sell the £ soon, do so.

Commodities now:

We have three outstanding recommendations to be long of various commodity markets - Coffee from the 10th December Cotton from the 28th December and Corn from 9th January The Coffee trade is based on weekly and monthly signals (in addition to a daily version) so we are happy to keep it, even though it has been slow to rise. The Cotton trade has slowly begun to work out, so even though the signal is old, we are happy to keep that too but the Corn has been a disappointment. It has re-compressed several times, in a similar fashion to the FTSE (see above). Updates, including arrows showing the advised entry times:

Coffee, cotton, Corn trade updts

The main reason that we are keen to keep these commodity long positions remains the the weekly-scale bottom index in the S&P world commodity index last reported in the January 9th edition and updated here:

Commodity index wkly bott

This makes us think that there is much further room for prices to rise in various different commodity markets and we will try to identify which ones these will be as time goes by. For now, keep long of all of these (and any others you may have bought) but don't risk much in Corn. If that doesn't start to move up soon, we will try to find an alternative market to buy.

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