The main world stock indices are following our script quite closely. After bottom extensions just over two weeks ago in US, Canadian and Singapore indices, there was a fairly general rally, which has now run into resistance at the level of some old compressions in the US and Germany. This is where we suggested that nervous traders should jump out of long positions advised on the 16th November at those extension bottoms. Longer-term traders might stay long, in case there is a further up-move to come:
In the meantime, our standing advice is to short-sell Italy, Spain, Greece and more recently, France whenever there is any reason to sell anything in the Eurozone and this resistance area was just such an opportunity. Since the Dax pushed up into the compressed area, these others have all ‘backed off’ a bit and are all a few per cent below their recent rally highs. We will advise what to do next soon – there may be more weakness to come and this certainly fits that old adage ‘buy the rumour, sell the news’ as the latest deal on Greek debt coincided with the highs in each of these ‘shortable’ markets.
Elsewhere, Japan rallied up from recent compressions, as advised and a dip may have started today that should be bought again soon. China has continued to fall to new three-year lows. We continue to expect that this latest ‘leg’ down will lead to the long-awaited ‘China buy’ that seems to be getting closer but this will require a weekly-or monthly-scale bottom extension, possibly combined with a turn. There are turns due in China around December 12th and again at the year-end, so we watch carefully to see if any of the China indices will oblige by providing an extension near those dates. Until then, as advised on November 8th traders should position from the short-side.
Energy markets remain uncertain and compressed - we are watching intently and will report.
Grains bounced off support that we pointed out in the wheat market on November 12th but may have trouble getting much higher – we will write on this later in the week.