- New Science in old markets -

Equities – some bottom extensions, also in the £/Euro

In the last few days, weakness in equity markets has produced some bottom extensions. These are in relatively minor national indices but there are some big sector versions too. Europe first:

Fin, Port, Mdax bott exts

The 3rd example above is of the German Mdax, which comprises the next 60 '2nd tier' German companies not in the DAX itself, but excluding tech firms. Now Asia:

Kor, Malay bottm exts

And the US sector indices:

Cem, Air, Home, Mat bott exts

All this suggests that the current part of this decline is getting overdone and that a bounce is likely. If you are short from our advice in the 24th September, 25th September and 1st October editions then you may want to take some protection here. We think that a bounce back up to recent compression levels is possible - there are lots to choose from and they are all about 1.5-2.0% above here, as you can see from looking back through the recent archive. Such a bounce could be quick (it took 72 hours in the equivalent situation in April 2000) and you should not wait for further notice from us to sell (or re-sell) if it occurs.

Elsewhere, there has been a bottom extension in the Euro against the £ (i.e. the £ has got too high against the Euro). Any bounce in this currency pair would probably have a magnified effect on UK stocks, so if you want to buy any equity market (for a bounce only) you might try the FTSE. Here are the two charts side-by-side where some correlation is apparent:

Euro-£ ext, FTSE

Of course this signal means that you can also sell the £.

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