There has been a flurry of top extensions in stock indices in many parts of the world. This started in the US toward the end of last month as reported in the August 26th edition and has continued with increasing pace. The new signals come from Europe, where Switzerland extended two days ago and now Holland and the UK have joined in (note that we now have FTSE data):
From South America, where those two neighbours and rivals Brazil and Argentina both extended:
And from the US again, where a mid-cap index and Nasdaq futures both extended in the last few days:
These top extensions mean that stock markets are vulnerable from hereabouts to further drops. Our recommended short positions in the US are currently loss-making, as we advised selling when some resistance was just overhead in the August 15th edition. We keep seeing new reasons to hold on to those shorts however and these top extensions are yet more of those reasons. The recommended short positions in Spain, France or Italy made that same day would have been stopped out yesterday and we wait to see if there is another opportunity to re-short. If we had not advised those European short positions, we would be doing so now, but it is contrary to trading common sense to re-enter a position that has only just reached its loss limit.
Elsewhere, two energy markets compressed yesterday Rbob and crude oil. We reported two days ago that Rbob had compressed during the thin electronic-only trading on Labor day and seemed to be breaking down but recommended waiting to take any action. This fresh compression in these two energy markets ‘re-sets’ the clock and so we now wait further to see which way these new compressions will break. The background to this remains mixed - there is a weekly-scale compression above current levels in Brent crude oil futures that will ‘weigh’ the oil market down, as reported on Tuesday but the commodity index that we follow most closely has made a weekly-scale bottom extension, as reported on August 26th and so we are pre-disposed to long positions in commodity markets in general. Our attempt at buying wheat failed quickly but there will be others to buy soon.
Regardless of this background bullishness about commodities, we still have an outstanding short-position in Copper from the August 20th edition.
We wait for these energy contracts to break and will recommend buying if they break upward. More soon on that. Charts: