The bounce that we anticipated is occurring and long positions advised on the 24th and 25th August in various equity markets have open profits of varying sizes. We wrote in the first of this series of Equities - what next? articles that we would try to catch the bounce but that is probably all that it would be - a bounce. The next task is to anticipate where and when it will end and we have two tools for this:
- For timing, we predict turns in advance from the analysis of cycles - the most recent turn list was in the August 17th edition and we will publish another next week. There are no turns due until a smallish one spanning the weekend September 4th/7th, so we need take no immediate action
- For price level - resistance will come from the old compressions that formed and were then broken to start the drop from the 19th August into the lows of the 24th. These compressions were at both daily and weekly scales and the subsequent drop ended with daily-scale bottom extensions, from which prices are now rebounding, as is usual. If approached, these compression levels will be hard to break through.
Regular readers will know that a feature of compressions is that, once they have broken to start a new trend there is frequently a 'return move' that takes prices back to the level of the compression before the trend swiftly resumes. This offers a second chance to enter a trade if the initial break has been too quick to catch. We capture the underlying market interactions to create compression signals which would be called 'attractors' in the realm of mathematics - the term is self-explanatory and there is more in the user guide.
These compressions in S&P futures occur between 2030 and 2120 in the weekly version and 2070 and 2105 in the daily, as shown below. If the lower of these is approached (i,e, 2030) then sell all US equity market long positions and review the others too - we will then start trying to find a place to go short, which might be immediately. One word of warning - this 'bounce' may easily fall short of these levels and we will comment further as the story unfolds.