There were quite widespread compression signals in US equity indices yesterday, as shown here:
This comes at a time when we have seen many weekly and even monthly-scale top extensions, which show that the uptrends of the last year are tired. Some Nasdaq-based indices have continued to push higher and they too have been making fresh weekly-scale top extensions as reported earlier this week. These new compressions mean that a new move is coming imminently and it would obviously suit our current bear view of the US if the break into that new trend should be downward. Compressions are moments of maximum uncertainty however and can break either way. This opens the possibility that that imminent break could also be upward and so we would get ‘one more rally’ before this whole bull market rolls over and dies. The best plan in these circumstances is to stay with the current bear view but to tighten protective stops to just above these compression levels, the upper end of which are at yesterday’s (11th December) highs.
We have had a bearish view of other equity markets too, principally in Southern Europe but also in selected Asian indices. There has been weakness in many of these markets and now we are starting to see some bottom extensions in Asia that indicate that this ‘leg’ of the drop will end hereabouts. Singapore and Australia are the most convincing examples, coming after the first one New Zealand, which we don’t regard as being much use as a predictor for other markets, so is not shown here:
Obviously a bounce in the East could spill over into Europe and the US, so this is another reason to take great care with a continued bear view of any equity market here. We would buy some Singapore to add to our existing ‘long Japan’ advice and maybe some Australia too. We are always interested in buying Germany on dips, so will watch that market carefully over the next few days.
Natural gas has continued to rise and now places our ‘sell short’ advice at risk of a loss. There was another top extension yesterday, which is not much comfort if you took our suggestion to sell short in the 10th December edition. We watch carefully – here is an update:
There are no changes to our other existing views. More soon,