- New Science in old markets -

The equity market bounce part 3 – try a tactical sale of the US

Equity markets around the world have started to churn and diverge after the recent rally. Some are pushing at new highs, such as the most popular US indices of the Nasdaq, S&P500 and Dow industrials. Others, such as small-cap and mid-cap US indices have stalled short of new highs or remain weak, like Australia, Brazil, Taiwan and a few others. The outlook for the future is also mixed, as shown here:

European stocks fell away from weekly compressions, bounced from daily-scale bottom extensions and are now back up to the compressed areas. We are happy to be short of the usual S European candidates, as recommended in the 4th November edition.

Euro350 & Eurostoxx

US stocks did much the same, but the rally has taken prices a bit higher and the all-important Value-line is now just above the resistance level offered by that weekly compression. This 'penetration' would normally be enough to make us bullish but there was a turn due yesterday that seems to have marked a high point. This turn came from the Dow series that often picks out more important highs and lows, so the recent up-move is probably over for now. If prices slip back down from hereabouts and go back into the area of that Value-line compression, we may still see a big down-move next. This is a delicate balance and so we cannot recommend the usual kind of trade with a half percent stop-loss. We can however suggest a short position right here with a much closer stop just above yesterdays S&P 500 futures highs. Charts:

Valug and S&P

Elsewhere, there have not been any new signals in bonds since the weekly-scale top in the US 30-year. Here is an update:

Bond weekly top update

This signal still has lots of life left and so we will try to find another place to re-short this market.