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European stocks and wheat update

Stocks in Europe have been marching upward to a different rhythm from that in the US. Both moves began from the lows of the sell-off into late December but the prior decline had been persistent in Europe, starting from highs made in Spring of 2018. The US had trended higher until its own high point in September 2018 (both are arrowed below) but the subsequent decline was steeper. Since the lows, the US ascent has been more exuberant while Europe has crawled upwards with bigger downward reactions.

Eurostoxx vs NYSE

There have been top extensions along the way in both regions and we have written most recently about a signal in the Dow in the February 26th edition. Let's now look at Europe in more detail, where the first extensions came at the same time as those in the US midcap and small cap indices reported in the February 6th edition. After a dip, prices resumed their climb until more signals occurred on the 20th February in Switzerland and a couple of other European markets. This stalled the rally in most of the indices, except for France which went on to new rally highs but which has also now extended:

Sweden, Switz, France top exts

These most recent top extension signals happen at a time when the US appears to have stalled up against the last resistance that we can identify (see Feb 25th edition) and so the scene is now set for some declines in both regions. We have already advised holding on to shorts in the US and would now add some in Europe.

Elsewhere, wheat has continued to drop after daily-scale bottom extensions that we reported on the 27th February. We advised waiting for some signs of reversal before jumping in to long positions and there was a decent bounce two days later after a new low for the move. There was also a weekly-scale version of the bottom extension that we could only see on Friday, one day before that 'low-point-and-bounce'. This is good enough evidence and we would now buy.

Wheat bottom exts 2

It is quite possible that this signal in wheat will also lead to tradable up-moves in the other grains as they have been moving as a flock even more than usual recently - due no doubt to the extra dimension of the trade skirmish between Trump and Xi. There is still some risk that the trade negotiations will collapse and that grains may drop as a result but that risk is reduced a bit now that prices have already fallen. We bought Corn too.

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