Several US indices made daily-scale compressions at the end of last week and have since moved higher. We are always on the alert for any signal but these new ones come at a time when we have an outstanding short-sale recommendation in US equities issued in the March 20th edition. The situation is more nuanced than the usual 'a compression has broken, so follow it' simple conclusion, because:
- The markets concerned are stuck in trading ranges and multiple compressions can occur while the range continues
- The turn event that we expected between the 18th and 20th March marked a high in stocks (and a break higher in bonds) which should last for a while - probably several weeks longer, at least
- The third chart below shows that this most recent rally since a low point 5 days ago has merely brought the MidCap back up into the compressed area from which it fell on the 20th March
To summarise, prices can still fall from here but you should not risk much on short positions - if these compressions in the MidCap do not restrain the rally, we will soon change our minds.
All signals courtesy of software supplied by our friends at Parallax Financial Research www.pfr.com