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More US equity index top extensions, bonds are compressing

There has been a flurry of top extensions in US equity indices. We have already reported some daily-scale signals that began to appear last Tuesday and there have since been more of them. Here is a selection including three of the weekly-scale extensions that we saw on Friday:

This doesn’t change anything as we have already advised starting a bear campaign here that will last for many weeks and maybe months. As this will entail fighting the ‘wall of money’ that is currently streaming out of central banks, we have repeatedly suggested that the best candidates to sell short are the markets of Southern Europe because (among other reasons) they are less likely to be the recipients of much of this new created money.

All markets in Western countries will have trouble going higher from here but these Southerners are the most vulnerable to an immediate drop, as most recently advised last week. We would still avoid selling short Germany and its surrogates for the foreseeable future because the ‘line of least resistance’ in Europe for newly created or existing money is to flow into these economies – even if there are top extension signals. This constant flow will tend to push all asset classes higher, particularly real estate, which is now experiencing its first boom in living memory in Germany’s prosperous towns, as we first warned would happen several years ago.

The only other thing to report is that US T-bonds and German bunds are now starting to compress at both weekly and daily scales, so a new move is coming soon - possibly a big one. We have argued here before that the relentless buying of government bonds by various central banks will have the eventual effect of draining all the bonds that are 'easy to buy' from the market place. This huge reduction in the 'float' obviously means that continued buying will have progressively more dramatic effects in pushing bond prices higher. We will report more on these developing compressions and wait to see if they break in the direction of higher prices. if they do, it may be time for the beginning of the end-game in bonds in which a steepening of the existing uptrend leads to the eventual 'top'. Disaster will ensue of course after that happens, as all the marked-to-market profits on the huge portfolios of bonds built up during 'QE' turn into losses (just as in a failed market 'corner') but we will deal with that when the moment arrives.