US stock market indices have pushed a bit higher in the rally that started with bottom extensions reported in the 16th November edition. These were in several US indices, Canada and Singapore and the rally has been quite widespread, affecting most regions to some extent. China has been the exception as it is marching to a different beat, still unwinding a mini-bubble from 2007.
Now these US indices are pushing into resistance from old daily-scale compressions and the Dow transport index is back at the top end of its tightly-defined range – it has just compressed again at a weekly scale but the best use for this index has been just to watch the boundaries of the range. It is at or near, the upper boundary now.
Canada has generated all three of the recent signals that we have used and it too is now pushing up into the resistance offered by the area of that old compression. Singapore, which has rallied by some 6% since the buy signal has now made a daily-scale top extension. This adds strength to the argument that this up-move is nearing an end. All traders should now exit remaining longs. Braver souls and shorter-term traders may short-sell any of these markets, the US, Canada and Singapore.
The situation in Europe is not so clear. The early November dips were not as large as in the US and elsewhere and so these markets did not set themselves up for bottom extensions. Compressions formed instead and have largely now broken upward. Even in Germany, where a very large compression formed, the main index has now (just) pushed back above the level where it formed.
This is awkward. We have a very strong preference for short-selling the equity markets of Spain, Italy, Greece and (more recently) France because of our reasoning that they will continue to be crippled by membership of the single currency. This is the converse of the logic that makes us want to buy Germany on any bullish signal that occurs anywhere in Europe (or the US, for that matter) as it is turbo-charged by membership of the Eurozone. This is a long-term view, stemming from our work on feedback but not dependent on Hurst-derived extensions and compressions. At the moment therefore, we do not have good short-term reasons to sell our favourite candidates short – they have all broken up from compressions and these signals probably still have a few days to run until they expire.
Accordingly, we would stay long of Germany (and of Japan - the only markets where we advise this) and wait for any chance that occurs to short-sell Spain, Greece, Italy and France – in that order of preference.
More later on Bonds - still a good buy on dips and probably the best profit opportunity that will be available in the weeks ahead. More also on Grains, where a technical problem interfered with last week's promised update. Briefly, Grains are broadly following the script that we wrote in the November 12th edition. Then they were approaching support, from which they bounced only to hit resistance at the overhead compression levels identified in that edition.