- New Science in old markets -

Bunds and Finland make bottom extensions – an end to weakness

Bund futures made a daily-scale bottom extension on Thursday last week before the May-day European market holiday, as did one  Finnish market index that we follow:

Bunds, Finland extend

This drop in Bunds is the first since the beginning of European QE in March and is an opportunity to buy European government bonds selectively - probably Bunds are the best choice as Germany has become something of a 'safe haven' in these troubled times. It is worth pointing out that prices are already terrifyingly high and that the Bund market yields close to zero along much of its maturity curve. Any purchase here must be seen as only a 'trade' as the possibility of further major gains from here is slim.

Bonds fell in the US trading session on Friday, while Bunds were closed for the holiday so it is likely that there will be some 'catch-up' weakness when Bunds open today. As ever, when we are trying to pick the bottom of a falling market, please buy sensibly using scale-down bids. This 'buy' signal in Bunds also means covering the outstanding US bond short recommended in the April 29th edition.

We also advised selling the Swiss stock market short in the next day's edition on April 30th. There is little correlation between the Swiss stock market and the Finnish  - Switzerland is outside the Eurozone while Finland is seen as one of the Northern European 'German bloc' of fiscally responsible countries. Nonetheless the stock markets of all European countries have been more or less weak since mid April and this bottom extension probably means that weakness will now end, so we would cover that Swiss short now too. There is no other current new signal in any of the European equity markets except a compression in the FTSE:

FTSE comp

Which may be bought if it breaks upward, although there is a national election on Thursday that may result in a left-wing coalition with disastrous implications. This is well-trailed in the media and so should be 'in the price' by now, so probably should be ignored as a factor

The other European 'buy' candidate is the dull choice of the Eurostoxx. This has none of the excitement of trading the geographically more specific indices like the German Dax or Spanish Ibex with their divergent behaviours - the Eurostoxx gives a blended result. That may make it the perfect choice at this early stage in European QE, where everything is in the updraft:

Eurostoxx daily

Buy it.