During the shortened Easter week, several stock indices made weekly-scale compression signals:
None of the 'major' indices have done so - the only US example is this Russell 2000 which is a small-cap index. There are a couple of other European examples not shown here but they are also in minor indices - Portugal and Finland.
We have expected that stock prices will 'churn' back and forth in a range until compressions like these appear. They signal the imminent end of that trading range and the start of a new trend - we do not usually like to anticipate which way the break will occur but we have a bias to the downside as we think the bull market is over, as written here recently. These compressions have appeared a bit earlier than we expected which (combined with the fact that they are only in minor indices) might mean that stocks will still continue to trade sideways until new compressions form in more important indices.
There is one indication that the markets are 'oversold' in the short-term that comes from a daily-scale bottom extension in Greece:
Greece has fallen further than others lately, despite a slightly improving economic situation there, so this could be a warning not to get too bearish of this or indeed other stock markets. If you bought this dip, stay long.
There have also been daily-scale top extensions in German Bunds and Italian BTPs, which probably indicate that the flight-to-government-bonds that usually accompanies stock market drops is over:
All this means that we must be hyper-vigilant here. There is a risk that stocks will drop further in the immediate future but (as argued above) it is slightly more likely that the trading range will continue for a while longer. Bear markets don't usually start in the midst of bad news, of which there is plenty right now, which is another reason for thinking that there will be another rally within the current range before anything else happens.
All signals courtesy of software supplied by our friends at Parallax Financial Research www.pfr.com