- New Science in old markets -

Trading tactics for equity indices and a signal in $/€

Equity markets have continued to rally with no significant pullback. Our advice in Monday 5th October's edition, repeated on Wednesday the 7th was to buy any small dip of 1-2%, in a selection of equity index futures, even if the dip was only intra-day. The size of dip to buy was dictated by the recent daily volatility of these indices, most of which have been in the range of 1.5%-2%. There were appropriate dips a few hours after both those editions, ranging in size from a little under 1.5% in the UK FTSE to 2.4% in Japan's Nikkei and so portfolios should now be long. Charts of the dips:

60 minute index dips

Prices are still likely to experience a greater pullback before long and the high point of the present rally before any such dip starts is likely to coincide with one of the upcoming turns published on October 1st. The next of these is a small one next Monday the 12th, followed by a much larger one on Thursday the 15th and so we are looking for a place to book profits. There are two sensible possibilities:

  1. Prices of US and European indices are in a range and so we could aim for a price near the top end of that range - say 2020 or above in S&P futures or 6500 in the FTSE. S&P prices are 2008 as I write, so this is achievable even during today's trading - perhaps we should aim a little higher:
  2. Wait instead for some intra-day signal such as a top extension at a multi-hour scale. It was just such a signal (an upward break of a 4-hourly compression) that triggered our bullish review of stocks last Friday, so this is consistent.

We will monitor the intra-day price movements for signals and report them as soon as detected. In the meantime, if you are nervous about the trading range, take some profits on some modest further strength. Our model portfolio will wait a bit.

Meanwhile, there has been a compression in the €/$ currency pair that is breaking upward, that is in the direction of a weaker $. We have two old half-positions that point the other way - one in the $ index and one in €/$ which we would now liquidate and simultaneously reverse to take a single new position that is short $/long €. We may advise further similar currency positions soon.

EURUSD comp breaking up#