- New Science in old markets -

US equities weekly compression part II – get ready to buy

The compressed condition in the New York stock exchange index may already be resolving in the direction of an upward break. We have warned from time-to-time that there is the possibility of a last 'blow-off' rally in US equities and such a move will probably start from just such a weekly compression as this, i.e. in a big index like this NYSE composite. The evidence is still a bit mixed elsewhere in the world but a clear break up from this signal would be significant for all world equity prices, not just those in the US. For now, we concentrate on the appropriate tactics to use here.

If prices close today above last week's high of 10,932, buy S&P futures 'at market' for a fresh long position. If the market remains strong until a short time before the close, that will also do, with the condition that this should be a 'good' break and not just a slightly higher close. Any hesitation in the price hereabouts opens the possibility of a fresh compression signal and a still-unresolved situation. The chart:

NYSE weekly comp2

There is a second possible tactic: - wait for a confirmed break and then buy a subsequent pullback. This course of action carries the risk of 'missing the move' if there is no pullback but, as we have often written here, markets often re-visit a compression after an initial break, offering a second chance to adopt a position for the main move.

An explosive movement, such as is possible here, may not provide that convenient dip, so we would recommend acting sooner rather than later.