- New Science in old markets -

US stocks make top extensions. Bitcoin analysis

Many US equity indices made top extensions after yesterday’s latest move up to new highs. Here is a selection:

USD equity top exts

There are signs of ‘froth’ everywhere, as widely reported in the news media – the record price paid for a renaissance painting that may have been painted by da Vinci, the antics in the Bitcoin market and so on. Here is a Bitcoin chart, displayed with a log scale (the only way to look at exponential moves) showing that it is extended at a daily scale. That makes more churning hereabouts likely before the crowd takes over again.

Bitcoin top exts

The sharp drop in the Nasdaq indices on Wednesday this week coincided with a 20% drop in Bitcoin, so there is obviously some dim connection in the mind of the market that links these two (largely unrelated) assets. These curious correlations can last for a long time as was seen in the 1980s when soya beans and silver tracked one another for an extended period, so if you trade the Nasdaq, keep an eye on the bubble that is building in Bitcoin.

The consequences of these new top extensions in US indices are likely to be more up-and-down ranging hereabouts (churning, as we also expect in Bitcoin). It is unlikely that these daily-scale signals will mark the eventual high point of the move as 'spike' tops are very unusual at the end of bull markets in equities. Instead, there is reduced danger in trading from the short side and so we advise resuming short selling on rallies while continuing to buy dips - trade both sides in other words for a little while. We will advise.

Those equity markets that have not followed the US higher are much more vulnerable to weakness. These are concentrated in Europe, where we already pointed out a compression in the FTSE in our last edition that has now broken downward. Sell.

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