There have been top extensions in a couple of Dow-related US instruments in the last 48 hours:
We have warned that this rally is on shaky foundations, due to the looming presence of prior weekly-scale top extensions in the US and Germany. These longer-term bear signals made us advise waiting for the chance to sell the US short instead of trying a trade on the long side and that moment has now arrived, so sell short here. If you still have any longs remaining in Germany from our ‘buy for a trade’ advice in the December 13th edition, sell now. We may advise re-shorting Southern European indices in the next day or so.
We have outstanding long recommendations in various markets in the East – Japan since the November 12th edition; Australia and Singapore since December 12th and here is an update:
These have all risen and now Hong Kong has also broken up from a new compression:
We would add to the current Eastern long positions by buying Hong Kong but with caution as it is hard to see any future in which US stocks decline but these four continue to rise. Japan is the only one of these that has a weekly-scale signal supporting a longer-lived rally (see last chart in the group of four above) and the signals in Singapore and Australia are getting a bit close to the end of their working lives. This makes us think that rallies around the world will generally stall and these fresh US daily top extensions are just one more piece of evidence. If Hong Kong should reverse back down below these new compressions, we will advise reversing into shorts. Protect longs in Singapore and Australia with closer stops or perhaps by selling some calls.
Copper has been stealthily rising for some weeks and now it has extended:
This is evidence that the rally will stall hereabouts and fits our long-term view that commodities will fall but that bear-market rallies were likely. This is the first top extension we have seen since giving that advice and we now advise selling copper short here. This may not prove to be the best place to hold a short for the next big drop as there is a weekly-scale compression shown in the second chart above that will provide some support. Don't let that put you off however as this general commodity bubble is overdue the next part of its slow collapse.
Gold has been falling again lately and we have had a number of enquiries about whether it is yet time to buy it. We have no signals that point to a gold rally and we will of course alert you as soon as (and if) we do. The dominant signal in gold remains the monthly-scale top extension seen in August 2011, the month before the actual high ‘print’ and this is now getting a bit old so bigger rallies are possible:
The problem with ‘waiting to buy’ is that this gold picture looks just like all the other spikes that we have ever seen in any commodity and so the likelihood is that prices will eventually fall all the way back down to the start point of the rally at around $800 or even lower. Gold is even more prone to these spikes than other commodities as the world becomes ever more connected, so making any financial contagion ever more likely. The panic is over for now, but no doubt there will be another along soon.
Dumb policies from dumb governments are an ever-present risk, as is an almost complete lack of understanding of how markets operate, even among free market enthusiasts. That means we will continue to be busy in 2014 and for the foreseeable future.
Happy New Year to all.