- New Science in old markets -

Equity extensions abound

Yesterday's early drop in stock markets produced a lot of bottom extensions in various markets around the world, including some major ones. The list now includes UK, US and Korea - all shown below - and also Austria, Mexico, Brazil, Hong Kong and Canada; these last three already reported. There have also been several sectoral index bottom extensions in the US, in Media for example and in the small cap indices.  This widespread tendency to generate bottom extensions across different regions means that we now think that some additional long positions can be taken - we suggest the UK in Europe and Korea in the East. Charts:Korea, UK, Valug

There is still some reason to worry about stock markets. Many indices dropped from compressions that we pointed out in the last edition of Hedlines on the 1st October and the area of these compressions will offer resistance to any rally that gets going here. Their levels are about 2% above present market prices (the Italian example is shown here) so it may just be a case of buying now and waiting to see if resistance is easily overcome as and when markets move up. There is a bigger cloud too - the weekly-scale compressions in Value-Line indices that we have pointed out many times may have broken down this week. It is too early to tell if the break will be confirmed (this is written before the US opening on Friday) but if it is, we would worry about the overall trend. We will write again on this very soon.

Italy & valug

 

The general liquidating drop yesterday also produced bottom extensions at a daily-scale in Brent crude. This adds to the weekly-scale bottom already reported and we have an outstanding recommendation to be long of WTI crude. This is a small position, because of the high volatility of the energy markets in the prior period and this is reflected in the 'loose' stop-loss order that protects this trade - see the Alpha Mail from 29th September. This stop was not triggered yesterday so that long recommendation is still outstanding. There will be resistance in WTI crude oil at the levels of the recent compression which initially broke upward but then  broke downward (see the chart below), but the weekly-scale bottom extension should inhibit any serious further weakness for a while. If not yet long, buy dips.

Brent & WTI

RE