- New Science in old markets -

Equities – what next, part 6

There has been renewed weakness in equity markets over the past few days, particularly in Europe, the US and Japan. The dominant signal in our view of the world is still the widespread occurrence of weekly-scale compressions in many equity markets in July and early August, which broke downward in the week beginning the 17th August. These signals have a shelf-life measured in several months, which argues that we have not yet seen the end of weakness, so this new little drop is no surprise.

The first 'leg' down into the lows of 24th/25th August ended with bottom extension signals almost everywhere, as written in the August 24th editions. This made us bullish in the short-term while remaining bearish overall. We advised taking two successive long positions in equity indices.

Weekly S&P, daily CAC

Resuming a bearish view, We advised selling longs and taking short positions in the equity markets of the US, Southern Europe (including France) Canada, Hong Kong and Japan in the September 14th edition. We cannot take so many positions in our model portfolio, so chose the US, France, Spain and Japan, as advised that same day. There was a fresh compression in France on the 17th September which also broke downward and led to the current weakness and consequently to decent open profits on all outstanding equity shorts. We are aware that markets are still 'range-trading' and it is prudent to take some profits whenever available in such conditions.

Accordingly, as tomorrow is the date on which we expect a turn to occur as part of the present series of quite tightly-packed turns, we would take some profits on any fresh weakness  - that is if prices go lower than today's lows.  If no such new low occurs, there is another turn due on Monday the 28th - we may try again then. We still have an overall bearish view so do not advise trying long positions in equity markets - stay partly short.