There has been a daily-scale top extension in one of the US indices that we follow – the Dow Jones futures contract. This is a solitary signal and has only been generated in the continuous contract series but it is a warning that the present rally is running out of steam. It may continue for a few days more, but we are now on high alert.
This comes 5 trading days before the next turn in equity markets, which is a cluster that is thickest on the first day - Thursday the 21st March but is spread over three trading days, ending on Monday the 25th. As usual, we cannot yet know if this will mark a high or a low but we have thought it would probably coincide with the end of the present rally. Now we will watch very carefully to see if prices dip for a few days and make a low point instead.
We said in the 5th March edition that we wanted to find places to short-sell our preferred candidates of Spain, Italy, Greece and France. This US signal is the first such chance and we would start that campaign now. France remains the problem here as it is still obstinately tracking Germany. There will undoubtedly be a divorce between these two in the near future but while we wait for it the other three will make better shorts. Italy has been pushed a bit lower by the comic opera that is Italian electoral politics whereas Spain has done a little better on news of falling labour costs. Regular readers will know that we see strong forces stemming from feedback loops that will continue to provide a bleak future for all these countries, so we would pick Spain as the best short-sale candidate now, as this optimism will be short-lived.