Today is the day that we expect a large turn in equities and also in some other markets – see the September 9th edition in the archive for details. This may even be a full grade 1 turn although there are probably too few components from Asia to justify that high ranking. It may of course have come a day early, as it coincides with today’s deadline for the US treasury to avoid bumping into the debt ceiling. That was avoided yesterday in one of the most widely anticipated events of recent financial history and it is notable that the highs of the US stock market 4-day rally (so far) were made at almost the exact moment of the announcement. Buy the rumour, sell the news...?
We have not yet issued a ‘sell short’ recommendation in equities as we usually require an extension signal to occur on or near a turn day – it is this combination that we find most reliable. There has been no such signal in the US but there have been in the Southern European stock markets, as pointed out in the last edition on Tuesday October 15th. There has now been a new one in the Ibex - Spain's 'official' equity index:
Those extensions, coupled with the strong possibility that the turn came a day early means that we now advise selling Spain and also France short. It is possible to sell the UK short too as the compression seems to have provided the resistance that we warned in the last edition and has apparently stopped the rally – here is an update:
This obviously suggests that you should also sell the US but we don’t yet have a reason strong enough to recommend that trade and there may be a better opportunity in the next day or so. Turns are usually accurate to within a day either side of the forecast date and yesterday’s possible turn already falls within that narrow time zone. We have noticed however that if a turn is ‘forced’ by events to come earlier than predicted by the rhythm of the cycles, there is sometimes a compensatory second rally shortly after the due date. If this happens, there will be a ‘double top’ in prices, either side of the turn date. Prices may also make new rally highs today of course, as this is the actual day that we expect the turn.
We will watch for a little longer to see if either situation will occur before issuing an additional ‘sell’ in the US although there is some risk that we may miss the move by being cautious here. If you are aggressive, sell now, but watch out for the possibility of that secondary rally...
Bonds compressed just before this drama came to an end and seem to be breaking up today:
This break is not complete until the session ends with a closing price above the compressed level (133-05 is the high) but if this should happen today or in the next few days, buy.
WTI Nymex crude oil compressed yesterday and there is no break yet today. We recently advised buying Brent crude because of a break upward from an earlier compression there and this advice still stands - these two markets seem to be in the process of separating. Here is an update:
On currencies - the dollar looks as though it will now resume a decline as the $/Yen compression pointed out in the October 15th edition seems to be breaking in the direction of a stronger Yen, after a brief 'HED-fake' the other way: