- New Science in old markets -

Equities – some new signals

There was a bottom extension in a Canadian index that we follow yesterday. We can only see these signals clearly on the market close, so this came several hours after we sent a reminder that yesterday was also a turn day in equities. The combination of the two - a turn with an extension - always produces a trade and so we would buy some Canada now . The Canadian market naturally correlates quite well with the US, so this means we would also cover the outstanding short-sale in S&P futures and consider a long position there too. There is another reason to adopt long positions in the US. As mentioned several times in recent weeks, there is a compression in one of the Value-Line indices at a weekly scale that initially broke upward and is now providing support on the recent dip. This support will be important for the market for some weeks to come as if it breaks there will be a substantial decline. For now, it is holding and so we can buy 'against it':

Canada and Value line

there is another development in the US too - the main Nasdaq index compressed yesterday, meaning that  a new move is imminent. These can break either way of course as described in our userguide and we rarely advise taking a position in advance of an obvious break, but the turn-and-bottom-extension combination described above inclines us to a bull view. We are aware that this is a high-risk trade and there is another reason to worry about the next direction for US stocks, which is the recent weekly-scale top extension in another Nasdaq instrument. This hasn't produced a price drop (yet) and so the signal may be short-lived. Be careful and don't risk much but an up-trade from here looks likely:

Nasdaq comp and ext

More soon,

RE