- New Science in old markets -

More bottom extensions

The renewed two-day drop in Stocks was brisk and we hope you took some of the 300-odd Nasdaq points that were available after our short recommendation in the last edition on Wednesday this week. The whole drop from rally high on Tuesday to the low of yesterday was a little over 5% and that is enough profit to take from a market that we think is still trading in a giant range. Now we see that the drop, which took some other indices to new lows produced more bottom extensions and so we are now back on the bull tack again. Some examples, firstly from the far East:

HK & 2x Japan bott exts

Some other far-Eastern indices already made bottom extensions on the first drop, like the signal in the Nikkei shown in the 3rd chart above. This is more than a couple of signals from Hong Kong and Japan

As reported in the August 6th edition, there were also bottom extensions in some European indices, including the Eurostoxx, FTSE and the Dax. Those lows have been re-tested on the drop over the last few days and some other European indices have made new lows. One of them is Austria, which has now extended, as shown in the first chart below. Signals from minor markets are often important as they can provide the only warning we get of a change of direction, so we include it here. Ten-year yields have also extended, as has Cocoa:

Aust, 10-yr yields, Cocoa extend

To summarise:

The panicky drops in stocks are probably near or at an end and the same is true of many commodity markets. The 'flight-to-quality' that pushes money into bonds (and so pushes yields down) is probably also near or at an end, so we would advise long positions in stocks and (selected) commodities while trying a tactical short in US Treasury Bonds and/or Notes. We will advise further on which commodities we find appealing as time goes by - this Cocoa signal comes soon after a bottom extension in Corn, not long after another in Cotton and there may be others. As usual, when considering a group of markets that sometimes move together and sometimes separately, it may be wise to buy the ones that have not fallen so much. From this point of view, it may be better to buy Soya beans than Corn...


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