Yesterday we expected a large cluster of turns in a wide range of markets. Some of the individual market turns are actually due to occur today, the 24th July, but the overwhelming mass of them were due yesterday. There were sharp drops in some stock markets yesterday, after highs for the recent up-move were established late last week on Thursday or Friday. As we warned last week, these early highs opened up the possibility of a ‘swerve’ in which prices trend upward before a turn day, pointing to an apparent high for the move that will occur on that day, only to dip a day or so beforehand to make a low point instead. It seems that is what did happen yesterday – a low point was established after exactly such a swerve. There were also two equity index bottom extensions yesterday – in Japan and Spain (which was the hardest hit and is one of our two favourite ‘short' candidates):
This means that more weakness in equities is unlikely to start immediately and that a bounce is probable. There is another turn (from the long-term Dow series) due on Friday the 27th July that may present an opportunity to re-sell after that bounce. We would cover any shorts that you may have, even in Spain and Italy, and continue trading Germany and the US from the long-side in the very short-term. The longer-term picture remains cloudy in the US (and so by inference, elsewhere) because of these weekly-scale compressions in the Dow industrials and the Dow transport index, which remain unresolved:
The coincidence of compressions and turns is powerful, so we expect a large move to begin imminently. Compressions signify that markets are on a knife-edge and so we cannot say which direction the new trend will take – we usually advise ‘going with the break’ but we will comment further.
Elsewhere, soya oil has dropped quite sharply, so that 'shorts' established in our last email should now show a decent profit. We do not advise holding these shorts as a 'strategic' position - this is just intended as a trading turn. We will try to identify an exit point but you should take profits as you see fit. Copper has dropped through the compression signals that formed recently, so you should be out of long positions and could try going short - maybe on a bounce back to those levels (shown here). Energy shorts are also now profitable and can probably be held for a couple of weeks - again, prudent profit-taking is advised in case we fail to find an exit. Cotton hasn't broken either way and so our 'long' recommendation is still intact. Close stops please! Here are the updates:
Lastly, we have no extension signals in either US or German bonds. Both have continued to climb since breaking up from compressions in early July and both were part of the turn cluster due now so it seems probable that there will be a pause or dip in that uptrend. Take protection on any long positions and bold traders could try a short here. Selling these bonds short goes directly against the grain of government and central bank policy, so don't risk much. We will advise whether to hold on to shorts as time goes by.