- New Science in old markets -

Dow makes a top extension, Nasdaq makes a compression. Look out!

The strange divergence between the three main US stock indices is about to resolve. We pointed out in the last edition that the S&P was range-trading, the Dow was trending up and the Nasdaq was in an (interrupted) downtrend. Now the Dow has made a top extension and the Nasdaq has compressed:

Trends end with extensions, but begin with compressions

This probably means that both these indices will fall. As the caption states, Compressions often occur just as a new trend is about to start, but usually we cannot tell which direction that will take - we have to wait for a break in one direction or the other - up or down. In this case the strange divergence between normally closely-related indices provide a clue. It is highly unlikely that the Dow will make further immediate gains from here and the Nasdaq is poised for a new move. The most likely resolution is for both to fall from hereabouts.

If you didn't already sell (and sell short) now would be a good moment to do so. Stops can be placed above yesterday's high in the Nasdaq, on a closing basis, as that would mean that this new compression has broken upward into a new uptrend.

All signals provide by software developed by our friends at Parallax Financial Research www.pfr.com