- New Science in old markets -

Top extensions in US equities at a weekly scale. Stay short S Europe and long bonds

There have been weekly-scale top extensions in Dow and S&P500 futures. These are important and are the most urgent sign yet that the stock market rally of the last few weeks will end imminently and is probably already over:

There have been warning signs for some time, so we remarked that equity markets were ‘dancing near the edge’ in our March 5th edition. You should be short of the Mediterranean ‘Southern fringe’ stocks as of last Friday 15th March following a daily-scale top extension in Dow futures  - our favourite short candidate was Spain but Italy, Greece and France will also do nicely.

Europe has been providing separate warnings for some time but we have been able to ignore them in favour of shorter-term bullish indications in the last few weeks:

The longer-term has looked worse than the shorter-term for some time and now they both look bad.

The far-East has also provided some weekly-scale top extensions which we were also able to ignore in favour of stronger bullish indicators (see the January 22nd edition). There are more now, in Hong Kong (already reported) and Japan:

So further rallies are likely to be restrained for a few months. We are still looking to buy China but the date of this purchase is now probably going to be later than the next turn, coming up on the 21st/25th March. If long Japan, take some profits and protect the rest. If you are long of German equities, this down-draft is probably an opportunity to buy more, but protect profits here as the effects may be more severe than we think. Move sell-stops up a bit.

This gloom about equity markets will make bond markets look better and we remain bullish, as we have been for some time.

More soon.