- New Science in old markets -

Bottom extensions in US stocks

The recent drops in stock markets around the world have now produced bottom extensions in the main US indices. The S&P 500 and 400 MidCap futures both made signals yesterday, as did the Value Line and Russell 2000:

S&P 5k, IDX, ValuG, R2K bott exts

This has the usual meaning - we expect that a rebound will start from hereabouts, or perhaps we will see a 'flat' period while the market digests recent price drops. As we noted in the December 18th edition, bear sentiment abounds, so we favour a bounce. Cover any remaining shorts and try a long position. It may be that the seasonal tendency for prices to rise into year-end is still present this year, so this could be a chance to fight the obvious trend and make a contrarian profit. Don't risk much though - we are trying to "catch a falling knife" here, which is dangerous.

There are no equivalent signals in European markets, but the correlation across borders is currently very marked so it is probable that a rally will develop in many other places too. To be prudent, wait for some signs of stabilisation before getting long of too many markets at the same time here - we are just looking for a bounce after all.

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