Each of the three main US equity indices made daily-scale compressions late last week:
As I write, the US equity market has opened stronger and so these compressions are all starting to break to the upside. This fits with the view that equity markets made a low point at the turn that we expected to see last week on Thursday the 13th June and with the various bottom extensions around the world that we have been reporting. Time for some more strength it seems. In the tug-of-war between bulls fuelled by central bank liquidity-pumping and bears looking at dire economic growth it is time for liquidity to win for a while. It is wise to wait for a confirmed break of these compressions before following them however – markets are ‘ranging’ and prone to false starts.
This doesn’t change our medium and longer-term bear view of US and European equity markets - we have reported weekly and monthly-scale top extensions that will inhibit rallies for a long time to come and so regard this current strength as a chance for a ‘trade’ on the long side, not an long-term opportunity to buy. Strategic players should be flat in these markets, looking for a place to go short. There is a turn coming up in about a week that may provide a chance.
There has also been a signal to buy the US$. The $index made a daily-scale bottom extension on Friday. This comes as the $index is also in support from an old weekly-scale compression, so is a doubly-strong signal:
We suggest buying the $ index, buying the $ against the Euro, or buying the $ against the Yen, the last of which places us in the odd position of having the same view as a government - Japan strives for a lower Yen.