Many US equity indices have made new compressions in the last 48 hours, repeating those signals that we reported in the December 12th edition. This is unsurprising as we wait for yet another Fed indication on ‘tapering’ but it shows that the markets are not ‘discounting’ either outcome and are on a knife edge. We remain bearish in the medium-term but these compressions can always break either way in the shorter-term so watch out if they break upward – there is always the possibility of ‘one more rally’. Stay short with stops not too far above, as already advised. Charts:
The MDax index of midcap German stocks also compressed yesterday for the first time and may be breaking upward today although we must wait for the end of the day for that to be certain:
This suits our view that you should be long of either this index or the Dax itself for a ‘trade’ as recommended on December 13th but this is only that – take reasonable profits whenever you feel like it and we will look for a place to re-short our favourite candidates - the Southern European indices. These have all bounced since we advised covering in that same December 13th edition but not by much. Selling even small rallies from hereabouts seems sensible to re-establish those shorts.
Bunds too are compressed, just to add to the general tension. US government debt instruments are not but they too have not moved away from the area of recent compressions so there is pressure building up all over the system:
New moves are imminent.