- New Science in old markets -

Stocks are still range-bound, so this rally means ‘take profits’

The overnight spasm of short-covering in stock index futures after the G20 meeting has taken prices back up to the highs of the recent ranges. We have been saying all year that this is the continued condition of these markets, so this means you should exit longs (if you didn't already do so near the range highs a few hours ago) and start looking bearishly again.   Some simple charts without any analysis, firstly of the well-defined S&P range:

S&P rangex2

and secondly of the less well-defined and much narrower range in the Eurostoxx:

Eurostoxx range x2These ranges are both 'subsets' of the broader versions that have constrained values all year. This is typical of longer-term trading ranges which often separate into smaller ranges within the larger whole. These smaller ranges may then 'break' or widen while prices remain within the greater confines. We will watch for this and advise, but for now, it seems sensible just to keep trading the existing narrower ranges. Sell long positions and trade from the short side as the next development will probably be that prices test the low-end again. You don't need to risk much, as selling near the high of the range (or buying near the lows) enables quite close stop-loss protection.

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