- New Science in old markets -

Stocks, Bonds, Gold, Dollar all compressing. Watch out.

In the last 24 hours, compression signals have arisen at a daily scale in US Stocks and Ten-year note and also in Gold and the $ index. Prices for all of these have been snaking sideways, which is the most common reason for the development of compressions. It means that pressure is building up for new market movements and the simultaneous arrival of the same signal in all these closely-linked instruments means that we should pay close attention to the price activity in the next day or so.

NYSE and 10 yr notes compress dly

Gold & US$ dly comps

Compressions often mark the start of new trends and the direction of those trends is usually in the direction of the initial break.  There are occasional 'head fakes' in which prices feint one way before starting their 'real move' in the other direction but that is less likely here where there is such close correlation between them all.

If there is to be a 'second leg down' in stocks (there has been much theorising about this lately) it will probably start from hereabouts. If instead, the uptrend that started at the lows in late March is to continue, that climb will start from around here. Bonds will probably (but not definitely) take the opposite direction, as will Gold. The $ index as mainly been negatively correlated with stock prices but that too is not a firm rule.

We would stick to our stock advice given recently - stay long of US equities from the recommendations given seven weeks ago, but with very close stop-losses. We will advise further in our next editions as things are about to get warmer.


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