- New Science in old markets -

Stocks compress, break up. Grains compress and hesitate

There have been several daily-scale compressions in stocks in the last few days, implying that the current range will soon break. The messages have been mixed but the rally that has taken place in the last few hours seems to indicate that the break is to the upside and means that this rally will go further. German and Swiss stock indices compressed yesterday and have made a good clear break upward today.

Long positions that may already be held in Germany (our long-term advice) can now be increased.

US indices have joined in with a contribution from Dow futures, which is also breaking upward as I write at 4.30 p.m. London time.  Assuming that the rally holds until the close, this means that the short-sales that we recommended in US indices from the turn cluster on August 20th/21st should now be set aside.  There have been a few compressions that formed and seemed to be breaking down – as in the Taiwanese example shown here – will probably now ‘catch up’ with other markets once they re-open tonight.

The main reason that we are keeping our stock market advice short-term in nature is the continued occurrence of weekly-scale compressions in an important US index – the Dow transport. It is still compressing now and until it breaks one way or the other then the current ranging behaviour will continue – daily compressions may form and break, leading to rallies or dips, but we cannot yet tell which way the next major trend will go. Here is an update of the situation in that index:

There have also been a couple of compressions in grains – corn and wheat, as shown.

After apparently breaking downward, these markets have since reversed and are now back in the area of those price compressions. We thought that we might have to recommend more than one attempt at buying these markets before the possible bubble started to inflate and these compressions now give the chance to place quite close stops on any long positions already taken. New lows today would signal a temporary exit.

We will write further on the effects of all asset classes of today's ECB 'bond buying' announcement soon. Regular readers will know that we consider all these manoeuvres to be irrelevant to the longer-term problems in the Eurozone and there will be another chance to sell our favourite short candidates, Spain and Italy in due course. We will advise when we think that will be, but for know it is better to hold our favourite 'long' candidate, Germany.