The compressed conditions in some equity and bond markets may be starting to resolve. Eurostoxx futures broke up from their daily-scale compressions late last week and some (but not all) US indices apparently did so yesterday. There may now be further strength in the Eurostoxx – and by implication some of the other European Indices too, but the situation in the US is more complex as recent compressions in other indices sit just above the market, which makes rallies likely to stall early. In addition, the weekly and monthly-scale top extensions already reported make the medium and longer-term prospects poor:
The Eurostoxx rally has already taken prices 60 points above the compressed level, which is about a 2% move. There will probably be more to come but it may be better to try and buy a dip if you wish to try to catch the rest of the move. The end of the whole move up is quite likely to occur on or about the 9th April, when we expect a big turn.
Ten-year notes have yet to break their recent daily compressions although yesterday’s early weakness promised a break down that was avoided by the time of the close. Note yields re-compressed. Compressions usually indicate that a new move is imminent, so we probably won’t have to wait much longer for the break but we should wait before taking new positions. As ever, compressions provide the chance to tighten protective stops on existing positions – in this case, we still have an outstanding recommendation to be short of notes, so stops can be moved down to a little above last week’s highs – not too tight please!
The other news is that both Japanese and Korean stock indices made weekly-scale compressions last week. They are trading above those compressions now but it is too early in the week to call for a ‘break’ – we must wait until closer to the end of the week. Japan’s aggressive stimulus package makes it likely that fresh strength will start sometime and this compression signal is probably a warning that the time is right – please wait for a confirmed break however: