- New Science in old markets -

Equities update – long, medium and short-term

Friday's late recommendation to sell short US stock indices came as a result of some daily-scale compressions in US indices breaking downward. This looks like the latest stage in a long-evolving story. The strong and persistent uptrend in US and many other equity markets since the lows of 2009 has been marked by its smoothness and there has been a great deal written elsewhere about the lack of volatility. The smoothness of a trend is one of the characteristics that we measure using the techniques described in the video on this site and the signals that we have been getting for some time from those techniques indicate that this trend has been unsustainable. The first longer-term warning signs came late last year:

Monthly equity tops

Then we began to see some medium-term indications of trouble ahead:

Nasd top, valug comp weekly

Most recently there have been the daily-scale signals compressions that broke down, causing us to issue 'sell short' advice on Friday in the last hour of the US session. By this time, many other equity markets have already fallen, producing daily-scale bottom extensions, as shown in the UK example. This probably means that a medium-term downtrend has now begun but that rallies are likely quite soon, which may push prices back up toward resistance at these compressed levels. We still have two outstanding 'long' recommendations in Korea and the UK with stops very close below the lows of Friday. If these are hit, we will probably not re-enter any further long positions looking for the bounce, as the down trend now seems to have started:

Nasdaq Comp, UK ext

In the meantime, China has been rising steadily, up and away from some monthly-scale compressions. That rise has continued in the face of mounting scepticism about China's economy and has now produced a weekly-scale top extension. If long, take profits. There are probably better markets to sell short so we will avoid advising doing so here and will report on those other candidates as soon as we find suitable ones:

Monthly and weekly China