- New Science in old markets -

Compressions in financial markets

There were many new compression signals yesterday in stock and bond markets, at a daily scale. This is no surprise after last week's new weekly-scale Nasdaq compression that we reported yesterday but it serves to illustrate that there is a great deal of pressure that has built up. The tight ranges of recent days are likely to expand substantially in the days to come - expect some violent movement. Here are some examples of those signals - we start with stocks, where the Dow FTSE and Mdax futures all compressed and (so far) are breaking those compressions downward today:

Dow, Ftrse MDax

The same thing has occurred in almost all government bond futures - here are signals from the Gilt, Bund and US bond markets. Each is either breaking  (again, so far today ) in the direction of higher prices/lower yields or is threatening to do so. We show the US 30-year yield instead of the price but the signal is the same:

Gilt, Bund, Bond comps

We emphasise that prices are breaking in these directions (toward lower stocks & higher bonds) so far today because it is very important not to take an early break as the final version - we have seen many examples of compressions that have apparently broken in one direction only to change course soon after - even on the same day. Selling stocks short hereabouts may result in a quick profit in the next few days but there is also a chance of a sudden reversal into a sharp rally. There is also good support just underneath present levels, as written yesterday so be careful.

Lastly, China also re-compressed last night, which calls into question the bullish view of that market that we expressed yesterday - this new compression means that this market has yet to decide which way to jump - all we can tell (as with all compressions) is that a move is coming, not which way it will go.

Chins recomp