- New Science in old markets -

Bubble watch – the beginning. Cotton extends

Stocks have begun to stir in the first signs that the new bubble we proposed in the March 29 edition is now inflating. European markets have broken upward from recent daily compressions, after some long sideways ranges. Here are Germany and the UK - the first chart shows Sweden, which has behaved like many of the  other smaller markets:

Europe comps break up

These European markets may now also be bought. As reported here in recent editions (March 29th and April 5th)  the US has showed signs of this new bull trend already and this is confirmed by a fresh glance at the three major generic indices, all of which have broken up from weekly-scale compressions. In the case of the S&P we have not yet seen a  'closing break' but we suspect that prices will stay at least as high as today's levels until that break occurs at the end of this week. There is still some resistance at current levels and just above here but we have already bought in anticipation that it will not restrain the rally.

US stocks wkly comps

If a full-blooded bubble should develop then there will be chances to buy again on dips but those dips may be short-lived. It goes without saying that bubbles always end badly but we are confident that we will be able to get out before the eventual 'top and drop'. Weekly-scale compressions have a shelf life of about three and a half months, which means a preliminary forecast taken from the date of the most recent signal shows we may look for an end to this process toward the end of June or beginning of July. This timing will sharpen as the end of the up-move approaches and of course we will comment more as evidence accumulates.

Elsewhere, Cotton made a top extension yesterday and will probably do so again today. This means we are now out of remaining long positions that we bought on March 2nd.

Cotton trade

Brave souls may sell short here but we should repeat the usual health warning that top extensions often mark the beginning of the start of a 'topping process' in markets that have moved up and that any subsequent drop may take some time to happen. It may be better to 'stalk' the market looking for signs that it has stopped rising and is ready to fall - maybe sell half now and half later. There are some signs that the current commodity rally is running out of steam, so expect more sell advice before too long.