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Equity markets extend more, bonds dip to buy and energy update

There have been more top extensions in European equity indices. Spain has produced several in a row, which is unusual and obviously uncomfortable if you took our recommendation last week to sell short after the first one, which coincided with last week's expected turn. These fresh extensions merely re-enforce our view that this strength will run out of steam at any moment, so we would stay short of selected European markets. The latest signals:

The turn day came and went – it was due on Thursday the 17th but may have been pushed forward by the fuss about the US debt-ceiling and its Hollywood-style cliff-hanger ‘race against time’. We wait and see but we still don’t have the combination of ‘turn and extension’ that we like to see before recommending any short-sales in the US. There is another, slightly smaller turn due tomorrow in US equity markets, so we may have another chance in the next day or so.

Meanwhile, bonds broke up from the compressions reported in the October 17th edition. There has now been a small setback in prices, which should be bought if you missed the first break up:

Energy markets continue to range-trade and have been making fresh compressions:

There is obviously a move toward a widening of the differential between WTI and Brent, as warned in the October 15th edition. This is probably (at long last) the result of the great increase in domestic energy production in the US from ‘fracking’ and other related methods and will have unknown consequences for prices of the products made from crude oil – principally Rbob gasoline and heating oil. Both have just made new compressions – heating oil at a daily scale and Rbob at a weekly scale for the third week in a row. The main determinant of these prices is refinery capacity, not the price of feedstock so we do not assume that they too will fall - we will follow the signals that we see and report to you. Apparently supplies are 'tight'.

We have recommended a long position in Brent futures and we would hold this, even though WTI has moved down into a possible new downtrend. This new compression in Brent offers the chance to tighten up protective stops on outstanding longs, as is usual when a new compression comes along part-way through a trade.


More soon, including a turn schedule update.