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China top extension, copper drops from new compression, Yen starts to rise again

A Chinese equity index that we follow has made a daily-scale top extension. This is the first such signal since we think a new bull market started at the end of June and is the latest evidence of some froth developing in stock markets.

This is a bit more serious than the prior two top extension signals reported in the September 10th edition and we would advise protecting some profits on long positions in China. For now, as China tends to 'go its own way' we think that other long positions may be left in place and we will recommend further purchases in selected markets on any dip that may come from hereabouts. We want to buy Germany and the UK is also a candidate. We will wait to sell Southern European equity markets short, although this is already tempting. We need to see a sell signal that is more immediately relevant to Spain, Italy, Greece and France before making that recommendation and we watch carefully. We have often written on the reasons for this posture and this article on our website re-states that argument.

Copper has made a daily-scale compression and dropped:

This reduces the risk on our ‘short copper’ advice from the August 28th edition, so if you were reluctant to sell short then because of our ‘high risk’ health warning, try now. Copper will still find some support not far below here from the group of three old compressions seen on this chart from early August, but these have little weight left now and will probably not hold the price up for long.

The £/Yen pair has extended:

We promised some word on currencies and bonds last week but have found little to say – some old signals have expired and now we have this new one. This probably tells us more about the Yen than the pound – not just that it will now strengthen against the pound but probably also against the $. We still have an old recommendation to buy the Yen against the $ from the July 29th edition, so if you still have that trade even though the trigger signal lapsed, hold on to it, or replace it with this new pair.