- New Science in old markets -

Compressions in stocks, bonds, sugar

The tight trading ranges in financial markets that have developed in the last few weeks have led to compression signals in stocks and bonds, as first reported in the August 26th edition. Those first few signals have now been joined by many more in US and European stock indices and in other bonds too. As usual, this means that these ranges will soon break and the most likely outcome will be new trends. Another possibility is that we will merely see an expansion of the range, so we must be careful here. This is a sample of the signals from US equity markets, but there are many more, particularly in sector indices that are not shown:

S&P, Nsdq, valug comps

European indices are also recently compressed but the last one shown below is France CAC40 which seems to have started an up-move. This may be due to local conditions as the misrule of M. Hollande nears an end but it may also be a clue that the next direction of European equity markets in general will be upward. We have already suggested this in the August 11th edition due to the Dax breaking upward from weekly-scale compressions but many other European markets have remained stuck. We remain bullishly inclined but are waiting for a clear upward move to start before we can declare a new bull move in progress. The picture from daily charts:

Germ, Swiss, Fr comps

The situation in bonds is similar, but here no clues exist about the direction of the eventual break. Further re-compressions are also possible. A selection:

US, German, Fr bonds comp

All this may resolve as early as today when the August non-farm payroll number is announced in the US. This has been anticipated as an important possible clue as to the timing of the Federal Reserve's next move on interest rates. It is certainly possible that a dip will follow today's data release but we suspect that the Fed will be very reluctant to indicate that a rate rise is imminent so close to an election in which one candidate has predicted a market drop. Such a successful market 'call' would give potent ammunition to the Trump campaign which we assume the majority of Fed committee members would prefer not to do. This will probably dawn on market participants soon (if not already) so any strong employment gains may not produce a very big drop after all.

Elsewhere, sugar has re-compressed in London and made a new compression in New York, which means that we now have a 'stale' short position in the US sugar market. We would tighten up protective stops and look to cover on any dip:

Sugar comps