There were top extensions at a daily scale in many of the main US equity indices on Friday. This comes at a time when we have already seen weekly and monthly-scale top extensions in these same indices, so it comprises a 'full house' of signals in all the major measures, at all time frames. We think the rally is in its 'last gasp' and that a set-back is imminent:
The exception to this group activity is the mid-cap sector, where several indices have stalled up against recent compression signals. An update:
Big market moves tend to end with extensions but start with compressions. Mid-cap indices have compressed, broken downward, re-visited the compressed area (as is normal) and have found it hard to rally back up through. The scene is now set for the 'main move' downward and you should already be short of some index or instrument in this segment of the US market, based on our recent advice.
Now the question is - should you add more shorts from the fashionable end of the market - the S&P500, QQQs and so on? Yes, but be aware that the rally may persist for a day or two more. It may stall here however, so we would sell now. The 'outrun' will probably consist of some churning while the market changes direction BUT a 'spike top' is a possibility, followed by an immediate drop, although the odds are generally against it. Don't risk too much on this first attempt. Our preference is to choose the Dow as the instrument to choose as the additional 'short' candidate. We will advise.
All signals provided by software developed by our friends at Parallax Financial Research www.pfr.com