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Equities rally into resistance

Equity markets have rallied with varying degrees of strength since we reported bottom extensions in the 7th August edition. These extensions were in European indices but US markets have also bounced from support reported in the 1st August edition. Asian markets have also generally rallied. Now there is some resistance just overhead and a turn cluster due today and/or Monday the 18th August. This comes from compression signals from which the markets moved down to start the small down trend into those recent lows. There are examples from both the US and Europe and in most cases the resistance starts at current levels or just above here. These two charts show prices as of 9.30 GMT today, the 15th August:

15-08-2014 09-26-22

When there is a ‘return-to-compression’ movement like this which coincides with a turn, we take this as an opportunity for a trade and so it is here. We advise taking profits on outstanding long positions in Europe and the US from hereabouts into any further strength and reversing into short positions. European indices probably offer the better short candidates but there is continued speculation that the European Central bank may be about to adopt more aggressive measures to pump money into the system which adds extra risk to European shorts. Our favourite short candidates remain Spain, Italy and France and the US market that is probably most suitable is the Dow or one of the other large-cap indices—even the S&P500 would do.