- New Science in old markets -

General equity comment in the medium-term, southern Europe in the shorter-term and gold

Equities have broadly gained ground in most world markets in the last few days. We advised buying some of them in the May 22nd edition last week and now we look at the medium-term prospects. Many markets have been in compressed conditions at a weekly-scale. Price ranges have been quite tightly defined and the presence of these compressions has greatly reduced the usual risk of whipsaw when prices range-trade. We were able to able to tell that the ranges would continue a while longer in other words. Now, there is some sign that these compressions are breaking to the upside, as the daily versions already did last week. The UK broke upward a few weeks ago, probably reflecting the lifting of general gloom there and both Japan and Germany are pushing up above their compressions as I write:

With three days of the week to go, it is always possible that a ‘stall’ will occur and that prices will fall back into the old range again, and so continue to compress. This is the risk but we are inclined to think that the upward breaks of daily-scale compressions last week in the US and Germany will provide enough impetus to keep prices where they are now or higher by the weekend. This will be necessary if we are to confirm an upside break of these markets from these weekly compressions so we would keep some buying power in reserve. Stay long of the few markets we have suggested, perhaps adding Germany here but wait for others. The US in particular must break the Value-line weekly compression shown here and if it does then no doubt the world will follow it up for a while.

We pointed out the downward break of daily-scale compressions in Italy and Austria in the May 15th edition, turning us briefly bearish before last week’s upward break in the US. We remarked in the May 23rd edition that those compressions would now provide resistance as usual and that this would offer a ‘second chance’ to sell short. Prices have now regained those levels but we do not advise re-selling as Austria has already pushed slightly through the last resistance level and this calls the trading strategy into question. Wait a while – there will be very good chances to sell the Southern European equity markets short again but we will sit on our hands for now:

Gold has begun to break down from the daily-scale compressions shown in that same May 23rd edition:

Sell short if it closes down here or even lower and even try selling it short immediately, betting that it won’t rally for the close today:

More soon,