- New Science in old markets -

US stocks now into resistance. UK FTSE update

The rally from the December 26th low - see the edition from that day has now travelled 14% and is in resistance. Here are updated charts showing the weekly-scale compressions that are providing that resistance - you can see that prices have pushed into the lower part of the area of the relevant compressions. Both are ringed in red.S&P & Dow weekly comp update2

There is no big turn event due in the next few days, as a look at the current turn schedule reveals, so we can't predict a reversal from hereabouts. In order to establish short positions we like to see a coincidence of a turn event and either a return to compression (like this) or a top extension. There is no turn due and no top extension but we do have this very clear resistance.

The answer is to protect profits by either:

  • simply selling out of long positions
  • placing a close sell-stop
  • selling some call options
  • switching to the UK (see next item)

....while we watch for some shorter-term reason to get bearish. We still think that US stocks are in a (very) broad trading range by the way, which is why we continue to look for opportunities to 'fade' smaller trends within that range.

The position in the FTSE is different. There, prices are cheap (4.5% dividend yield) and there is much pessimism about the prospects for the UK after Brexit, meaning it is hard for prices to fall much from here. We said 'buy at market' in the January 15th edition and we are happy with that advice. Selling the US to buy the UK here even seems like a sensible trade for value types. Here's an update to the reasons for the trade:

FTSWE return to comp2

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