- New Science in old markets -

The equity market bounce part2

World equity markets have mostly rallied since low points made in mid-October and some rallies have been fierce, as we warned could be the case in the October 16th edition of HEDlines. Prices in US indices pushed quickly above resistance from old compressions and still higher until we saw some daily-scale top extensions, as reported in the November 4th edition last week. There were also top extensions in Japan, as reported and a few more since then in the US - principally in the Dow  Jones index:

Dow top exts

but also in some finance sector indices, such as insurance, asset management and general financial:

Sector top exts

These extensions should 'keep a lid' on rallies for the next few days but there is a reason to be cautious about staying bearish for too long. We have pointed out the weekly-scale compression in this Value-line index many times in the past weeks:

value line weekly comp

as it has been the main reason for us to keep a bearish view of US stocks. Now that prices have regained and (slightly) exceeded the level of that compression, there is obviously the possibility that prices may push even higher. If that happens, we will probably see another move upward for some weeks and months and this may signal the last stage of the long strange, managed bull market that began in 2009. Bull markets can end in bubbles, so we are watching this compressed level with considerable interest to see if it will end with a whimper (as we thought) or a bang - which is now possible. Things are unclear here but we watch and will report.

Apologies to TS Eliot,