- New Science in old markets -

More extensions – all change. Currency update

There were top extensions in US equities yesterday and bottom extensions in Bunds and Gold. There were also continued bottom extensions in other European and US government bonds. Today is quite a big turn day, so it looks as though these markets, which have all been so coordinated lately will now turn around. Rbob gasoline also made a bottom extension so energy markets will probably join in too. The equity markets:

mid-cap-dow-top-exts
The Euro Bund and gold signals:

bund-gold-bott-exts

The Rbob signal:

rbob-bott-ext

We already advised buying gold yesterday as the signal in that market developed intra-day and now we would add US bonds and/or notes, Bunds and/or other European government bonds and some energy. We already bought crude oil a few days ago for another reason and this signal in Rbob adds a new lease of life to that trade.

Equity markets are more difficult. We remain broadly positive but the US index top extensions reported here and those sector signals that we have also seen in the last few days probably mean a dip (or maybe just a pause) is coming. There are no top extensions in Europe or elsewhere but it seems probable that any weakness that develops in US markets would affect others too. Our preferred short candidate is the UK, for reasons often stated here, but the other European markets are range-bound and near the top of those ranges - a move to the bottom end seems entirely possible. In the longer-term we are waiting to find places to buy, but there are likely to be some chances to trade from the short side from now onwards for a few days or weeks. We will advise if we see any more individual signals but for now we give the same advice as always when there are top extensions - watch out for choppy markets that may trade sideways before any weakness begins - there may not even be any serious drop, just an end to the recent uptrend.

Extra - $ currency pairs also make extensions.

The main $ currency instruments also extended yesterday, meaning that we expect some pause or reversal of the recent $ strength. Buy the Yen, Euro or £ (which didn't extend) or sell the $ index:

ind-yen-euro-exts

All signals courtesy of software supplied by our friends at Parallax Financial Research www.pfr.com