- New Science in old markets -

Equities – what next?

We advised selling short various equity markets, starting with the US in this 23rd October edition - one of several that day - then  adding our three usual European short-sale candidates in the 26th October edition. These trades begin to 'time out' today and more will do so on Monday so it is time for a review.

The 'time out' rule means that we abandon a position if the market has not developed a profitable trend. These four equity market shorts are all profitable, but not by much (yet). The Europeans are profitable mainly because the entry was well-timed at a local peak in price whereas the US entry was a bit too early but the market has since declined more. We are inclined to keep all the positions, for the same reasons that we advised these trades in the first place.

The longer-term picture started with weekly-scale compressions in the US. A decline then began, bringing prices down to the August low point, where there were daily-scale bottom extensions (not shown here - see the August 24th edition). There has since been a good rally that has found resistance at the level of these old compressions, as usual - see pages 4 & 5 of the full userguide for more explanation on this.

Dow & Sp400

The same thing has happened in several European equity indices:

Dax, FR, FTSE

So the picture is similar and bearish on both sides of the Atlantic. Asian stocks in contrast have been declining for a longer period and their rallies since the August low point are within well-established down trends. We have no outstanding Asian equity positions in our model portfolio (because it is full) but did recommend taking a short in China, for those who have capacity, based on a recent top extension:

China bottom and top

More recently, daily-scale compressions have been forming in the US and particularly in Europe. The European versions of these have all broken  into new down-trends and the US signals are showing some signs of doing the same thing:

Russ2k, trans, dowIt

In summary, we would keep all four of the current short positions (US, France, Spain and Italy) as the weekly-scale signals that were a reason to take these trades still have some life left in them. We will advise when we think it time to take partial or total profits and it is possible that we may advise trading in and out a bit along the way - covering in order to re-sell later for example.