We pointed out recently (May 13th edition) that US and German stock indices were compressed at both weekly and daily scales. This situation always means to be wary of any apparent break up or down in the short-term as these markets need to break compressions at both time frames for a sustained move to occur. They haven’t yet done this and the sequence of tightly-packed turns that we published on April 23rd has marked each high and low in the ongoing trading range with good accuracy.
Japan is in a similar state. There have been daily-scale compressions lately but these have occurred within weekly-scale compressions:
This has yet to resolve and the direction of the eventual break will reveal much about the likely success or failure of Japan’s attempts to stimulate their moribund economy.
We have several outstanding short recommendations in various equity markets around the world but that does not mean that we expect all these compressed markets to break lower - if they do we will advise selling them too. If not, we won't.
Elsewhere, there has been more weakness in grains, as suggested in the May 2nd edition and the most immediate recent drop has been in Wheat, which fell after a top extension in Soya meal and Corn, which dropped sharply from a recent compression:
This gave us no chance to sell Corn as the main drop happened on the day of the break. There may be a rally back up to the compression level in the next few days and this should be sold to establish short positions if it happens.
There has been a compression in Soya beans that has just broken upwards, so some sort of grain rally is possible:
Some care should be taken with this soya rally however – the bean and meal markets are both in a large ‘backwardation’ – the situation where the nearby delivery months are trading at a premium to those further forward, reflecting supply concerns for the immediate future. So far (at least) the incipient rally is happening in those more distant months, which are rising in price to meet the more expensive nearer ones. That may be all this is – a flattening – so we do not advise taking long positions here. It does make our outstanding short-sale in soyameal look vulnerable, but we advised taking this position in the (already expensive) nearer month of July, so all may still be well.
Copper has been climbing slowly for about 12 weeks and we have been looking for signals to sell it. There have not been any yet, so it is worth looking at the slightly longer-term, to see where they may occur:
The present rally has brought prices up from $2.87 to $3.18 per pound. The weekly chart shows that we expect resistance from old weekly-scale compressions to start at around $3.25. If this rally continues up to that level and if there is also a daily-scale top extension at that time, this will present a first-class selling opportunity. We watch and wait.
We are trying to analyse the various government bond markets, which are giving mixed signals at the moment and will report soon.