- New Science in old markets -

Tops in European bonds, compressions in energy

There have been top extensions in German Bunds and Italian government bonds (BTPs) in the last few days and this now presents an opportunity to sell short. Prices have been trending up for a while and this is not our first attempt to sell but it’s worth another try here, as the beginning of some kind of additional stimulus from the ECB is probably well discounted at present prices. We suggest the BTP as the better candidate as German bunds have assumed a ‘safe haven’ status in recent months - based we presume on the view that Germany is the ‘least sick’ patient in the hospital. Charts:

02-09-2014 11-00-48

There have also been some signals in energy markets. Brent crude futures compressed at a weekly scale and dropped through those levels. This solitary signal would not be enough to become bearish  as prices have been in a lengthy trading range, as is normal in the semi-controlled market that is crude oil. Now we have a fresh compression in RBOB too that appears to be breaking downwards today. It is too early to say that this break will be confirmed as the main market session has not yet even opened as I write, so the choice of tactics is:-

  • Wait until nearer the close, to see if prices remain below the compressed area and then sell short - this risks further weakness during today’s session that may make a short-sale too risky - selling into a large dip is dangerous.
  • Sell hereabouts with a stop above the highs of the compression (2.6320). This risks a rally during the day that invalidates the down break - prices may even close above that crucial price and so generate a buy signal. We would choose the first option - wait a bit and sell short if prices are weak but not too weak.

02-09-2014 11-01-38