- New Science in old markets -

Some bottom extensions in equities

The recent sell-off in world equity markets has now produced a few daily-scale bottom extensions. These have only occurred in some measures of Spain, Mexico and Taiwan and in two US sector ETFs - semiconductors and housebuilders:

Spain, Mex, Taiw exts

Semicond & hsebldrs ETFs

This serves as a useful warning that we should not get too bearish here and that bounces can occur at any time. Extensions may only lead to a pause in a trend of course, as explained in our userguides.

As we wrote in the January 3rd edition we expect big moves to occur in US and European equity markets which have been range-bound for a long time and which are compressed, meaning that the start of  movement is imminent. The weakness since the start of the year has pushed prices down below the compressed areas which means a bear market has apparently begun - the 'apparently' qualification is necessary because prices must close below weekly-scale compressions at the end of a week to start the trend. Today is Friday, so we will soon see.

In the meantime, while we wait to see if there will be such a closing break, rallies toward the bottom end of the weekly-scale compressions should be sold today, even though these levels are quite far above present prices. Some updated charts of where those levels lie, firstly in two European examples:

CAC & Swiss wkly comps

and now two in the US:

S&P, Russ2K wkly comps