- New Science in old markets -

Stocks in summer

Stock markets are busy but trendless and it may be that a summer lull has started. We pointed out in the July 31st edition that there was some old-fashioned divergence going on in US indices. This is a concept first codified by Charles Dow in the nineteenth century and purports to identify imminent ends to bull markets when the Dow industrials makes new highs but the transport index doesn't. We don't use this method but this observation fits with our own methods which have produced weekly-scale top extension signals in various stock markets around the world. Here is an update, firstly from the US and Europe:

Nasd, Dow & Eurstx top exts wkly

These signals are still 'in date' except for that in the Eurostoxx which expires any week now. The main conclusion is that rallies will probably continue to fail for the next few weeks in the US and maybe also in Europe, but we will not rely on this ageing Eurostoxx signal to recommend trades from the short side there. By all means try trades from the short side in the US, as we have already suggested.

Now China and India, which have moved closely together for the first time that I can recall:

India, China wkly tops

Both have rallied well this year and both rallies have stalled at weekly-scale top extensions. These signals are still fresh, so sell rallies here too. As usual when top extensions occur we warn that they mark the end of up-moves but not necessarily the beginning of down-moves, so two-way price action is more likely than a drop here.

RE

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