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Equity update – US compresses, Gold too

Hot on the heels of the top extension reported in the Dow in the last edition, there have been some compressions in those parts of the US equity market that haven't risen lately (which means most of them). The Value Line broad index, the S&P midcap and the Dow Transport index are all compressed and the transport index has started to break down (so far, with an hour to go of today's session).

valug, IDX, Trans comps

Combined with the Dow top extension, which marked the high point so far, this new evidence is starting to point to an impending down-move of some importance. We cautioned against selling too early in the last edition, as usual when a top extension occurs but new moves begin with compressions so you should now start to sell rallies and be prepared even to sell weakness in the next few days - if we see any break of these compressions in the Value Line or S&P400. It's probably not enough for the Transport index compression to break down BUT a similar signal in the REIT sector that we pointed out has also broken downward (update below), so there may not be a lot of time left to 'get short' of the market as a whole.

Lastly, Gold has just compressed too, so it is entirely possible that a move down in stocks will coincide with the start of an up-move in Gold. Of course we can't tell which way a compression will break unless there is some other evidence (there isn't) so watch the next few Gold sessions carefully:

REIT and Gold comps

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