- New Science in old markets -

Equities – a series of turns

Equity markets have formed a new range since the drop into late August, as we warned was possible in the September 1st edition of HEDlines The range has been quite tightly defined and we have not yet seen compression signals in any of the world's markets that might show that a break is imminent. The range formed because two signals were pointing in opposite directions:

S&P update

Now we are entering a period in which there are some quite tightly-spaced turns due, as shown in the September 1st AlphaMail. This probably means more range-trading but this time we have a chance to spot when the highs and lows will occur and so 'trade the range' with greater accuracy. The first of these comes today and it looks as though the turn will mark a high point so we would use any strength today to exit long positions in equity markets and try a short-sale. Candidates for short-selling are: the US, the Southern Europeans (including France) for reasons often stated here in the past*, Japan, Canada and Hong Kong.

There is a possibility that these tightly-spaced turns will mark the resumption of price declines that started at the weekly-scale compressions shown in the first chart above, for the simple reason that the bottom extensions on August 24th are now more-or-less expired. This means they can no longer be relied upon as evidence that the drop is over-stretched. In that event, the trading advice would be the same - out of longs and into selected shorts in equity markets but the choice of market would be less important as all would fall together.

*The single currency has promoted Germany's interests and harmed those of Europe's mediterranean coastal countries as written repeatedly here since we first identified that problem in 1996. The August 15th 2012 edition is the earliest in our archive to mention it.