- New Science in old markets -

Stocks compress, Bunds make bottom, wheat makes top

We pointed out weekly-scale compressions in US stock indices in the May 22nd edition. Prices subsequently moved higher in one of them (the Russell 2K small cap) but not in the others and there has been no 'follow-through'.

Russ2k, Valug, wkly comp update

Now we are seeing renewed compressions at a daily scale which means markets are still stuck, waiting for a break. That break is probably imminent. There is a signal in the consumer staples index which has dropped for a month but has now made a daily-scale bottom extension. This probably means a bounce in that sector but it may not mean anything for the market as a whole, which could just continue to 'rotate' as one sector falls and another rises, as usual when  a range forms. See the end of this piece for more on other stock markets:

Nasdq comp & XLP ext

Meanwhile, Bunds have made a bottom extension. This is interesting as there is quite a lot of bearishness in the bond markets, as we contemplate the unwinding of QE in the US and reaching the limits of it in the EU. It seems that this bearishness is premature at least and maybe just simply wrong. Be careful though - this is just a daily scale signal but we would buy some Bunds here. Silver has also made the same signal which probably means a bounce in precious metals - if you are still short gold, from our advice in the June 14th edition, cover now.

Wheat had made daily-scale top extensions, as reported last week. We can now see that it also made a weekly-scale top signal. Soya beans and meal have also made top extensions, if only at a daily scale but that seems to mean that this rally is either ending or has already done so. We have no signal in corn but we would now exit longs in that and keep only a partial long in wheat:

wheat wkly 7soy daily exts

One last note. There have also been equity index daily scale compression signals in Japan and in Italy. These seem to be breaking upwards, which adds to the bullish tone in Europe that started with bottom extensions in Belgian and Swedish indices at the end of June and it also means that you should buy some Japan here.

Jap & It comps brk up

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