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That Equity turn, bearish Italy and the latest commodity bear advice

There is still some uncertainty about the big equity market turn that was due in the second half of last week but the balance of probability makes it likely that a high point was made on Thursday the 10th. This means that you should hold on to any shorts that you have and we will advise further as the next few days go by. The remaining uncertainty concerns the great deal of churning that went on during the turn window, in which both local highs and lows were established, so there is still some slight possibility that the turn came a day late and marks the new lows made today.

There was a burst of optimism in Italy recently as the newish prime minister seemed poised to sort out the country’s problems. At the same time, government bonds of the other Southern European countries have also been quite popular lately and there have even been some well-received new issues. This pushed prices up and there have been top extensions in both Italy’s stock and bond markets:

The situation remains intractable in our view, as the problems caused by the Euro require more ‘internal devaluation’ that is bearable or likely, so these tops are a warning to be alert to the start of the next period of Euro-panic. We advise selling BTPs here.

The main commodity index that we follow made a weekly-scale top extension a few weeks ago, as reported. Here is an update:

We have commented several times that this would probably lead to a ‘rolling-over’ of commodity prices as one-by-one they stalled and fell. We now have two more candidates – sugar and wheat, both of which have compressed:

A closing break of these compressions would be a signal to sell short either or both markets. We expect more such sell-signals in the near future so we advise trading accordingly.

Commodity prices do not generally move in a closely correlated manner day-by-day but do so in the medium and longer-term. That means that we should expect groups of commodities to provide 'sell' signals at various times in the weeks to come. We hope that we will be able to ‘rotate’ short positions out of one group into another at the appropriate time but it is possible that there will be occasions when we have outstanding short recommendations in too many markets to hold all those positions at the same time.

More soon.