- New Science in old markets -

Crude extends, stocks drop from multiple extensions

Bothe Brent and WTI futures made top extensions yesterday, after a steady rise in oil prices from lows last summer that has accelerated upward in the last few weeks:

WTI & Brent top exts

Prices have now increased by around a half since the deep pessimism of June and yet the overhang of US oil supply from easily increased fracking sources still exists. At current prices, many 'tight oil' drillers can make handsome returns (and service their considerable debts) so it is highly probable that oil prices will remain stuck in a trading range and that this is the high-end of it. Choose your moment, but look to sell short. The usual warnings that apply to all top extensions are still true here - this kind of signal occurs at or near the end of an upward move - any subsequent downward move may not start immediately as there may need to be a period in which a 'top' forms. Trade accordingly.

Elsewhere, stocks have now dipped a little, after making new highs in many markets for several days since our last edition a week ago, where we warned that such a dip was impending. It is difficult and dangerous to try picking the top of a steep bull market (or even an up-leg within it) and so it is better to try and sell rallies once the move has apparently stalled. The most recent warning signals were from yesterday's prices and here is an update, showing a few of the many we have seen, including the Hong Kong Index that we published last week:

Dow, Norway, HK top exts

This seems to indicate that the momentum has broken, for now, and that it is safer to trade from the short side. Only sell rallies and take some profits on dips as the chances that this bull market will simply reverse into a bear phase is very small. Dips could be big however, so try to 'tough it out' when trying to stay short in what could turn out to be a bumpy few weeks.

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