The rally in stocks that has stuttered along for a few days has just had some help from a fresh signal in Eurostoxx. The futures contract made a compression yesterday, from which it is breaking upward so far today. This argues for a new uptrend and so our multiple long positions in various stock markets should benefit from what may turn out to be a general 'relief rally' after the worries of the past few weeks abate a bit.
There is one inconvenient fact however - most markets are still in trading ranges. We expect multiple compressions in such ranges and quick short-term moves both up and down within the range as each compression breaks but with no 'follow-through' until the final compression comes along and the range breaks into a big new trend. This could be imminent, but the test will be whether the DAX can push above resistance from the compressions that we saw in mid and late May, shown below. For now we would hold on to all equity longs, as any rally that does begin from hereabouts could be brisk and sizeable.
There are signs of imminent new moves in some commodities too. Corn compressed yesterday and began today's trading with a break upward (in thin conditions, overnight) that has since fallen back.This is worth watching closely as the talk of another 'El Nino' opens the possibility of large upmoves in many crop commodities and we will be watching all of them for buy signals. So far we have only advised buying Soybeans, on which we took a half profit yesterday. Buy an upward break in Corn.
If this compression should break downward instead we would be prepared to sell short but we would be nervous in the shadow of this potentially serious development for the world's weather. This El Nino was classed as small but has just been upgraded to large and further upgrades are possible. Elsewhere, Hog futures have fallen by 50cents in the last 15 months to their present low of 74cents. There was an extension yesterday so these can be bought here:
Cotton also compressed yesterday but has been less strong than Corn so far - it is still stuck within yestwerday's compressed area. It is also compressed at a weekly-scale as these two charts show and we would advise buying an upward break of the daily version:
Once again, a short-sale is possible if these compressions break down but the risks are much greater in being short of any intensively cultivated crop commodity with the Pacific Ocean starting to roil (which is what El Nino means). Here is a chart of the difference between surface temperature and its average - the customary way to measure the progress of this cyclical event. The current figure of 1.57 Degrees is quite high but 2009's serious El Nino reached 2.5 degrees.