- New Science in old markets -

Stocks and Gold

The behaviour of the main US stock indices since late June has been a gradual uptrend with 'a few days up, a few days down' that we call a 'grinding uptrend'. It has carried the S&P up from 3000 to today's level of around 3450 with no big dips, as we warned was likely to happen in the July 23rd edition. Such market moves often carry for some distance without getting overstretched so they can avoid any serious counter-trend 'reaction'. Another feature of this behaviour is that these shallow uptrends can easily steepen, which seems to be happening now. This has been aided by the many headlines pointing out a 'new all-time high in stocks' which brings in gullible and unwary buyers.

We expect that this new  steeper push higher will continue for a short while (perhaps only a few days) before some kind of top signal is generated. We are watching carefully and will report immediately we see one. For now, stay long and get ready to shift from bull to flat and maybe to short. Here's a summary chart:

S&P summry into top ext

In Europe, there has been some over-excited commentary about the potential for earnings growth. This is probably just caused by observers noticing that the US has travelled upwards since June more than Europe, so there is reason to 'catch up'. This is lazy thinking but there is some reason to be optimistic. The Eurostoxx and Dax indices have both compressed lately and are both now trading above the level of those compressions:

Eurostx & Dax comps brk up

This doesn't mean much, as several European indices have made repeat extensions in the past few months, as reported, but at least it means the momentum remains upward. Stay long here too, for now.

Lastly, more on Gold. In the last edition we apologised for not pointing out the top extensions that occurred in Gold at the highs of the recent run-up.  We added that you should sell rallies and the price soon moved up by $80, from which it has now fallen back by a bit over $100. It may continue to range-trade for a while but this next chart shows that a monthly-scale top occurred at the end of July, just as it did in August 2011, which marked the high for the next 9 years. The risk is all to the downside from here on.

Gold monthly tops

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