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China extends, new US compressions, cover all shorts and buy Germany

A popular Chinese equity index made a bottom extension in today’s session. This market has been ‘catching up’ a bit with weakness elsewhere in the region after a holiday break and the first day’s drop was enough to provoke this signal:

Today is a large turn day in US stocks (with a smaller turn in Europe too) but not in any Asian market. Nonetheless, we expect that the normal close relationships between markets across borders will soon resume and so we would regard this as a chance to buy China. Once again, this is only a daily-scale signal but these can sometimes provide early warning of longer-term signals too.

Some US sector indices compressed yesterday, making this the second consecutive day on which such signals have arrived. We suggested staying short yesterday but now we think that profits should be taken on all outstanding short positions – these new compressions add a note of uncertainty and this is a substantial profit to take.

As we warned yesterday, we would also take profits on all European shorts  and try a long position in Germany.