- New Science in old markets -

Mixed signals in stocks. Bond update

There has been a surge upward in equity prices from the compressions reported in the last edition on July 23rd. This rally has not been universal and there are now some mixed signals. Some indices have already now made top extensions, although those that have were already heading smartly higher, as this semiconductor index and two national indices from the low countries show:

Semi con, Belg, Holl top exts

Meanwhile, those US indices that were the subject of that July 23rd report both broke upward, although here we show only one of them - the Midcap. China just made a new compression on Wednesday and apparently broke upward today - it's not a clear break yet, being too feeble, although that could easily change and the move could quickly gather force. Lastly, an ETF that tracks a broad European index seemed to break upward but has stalled and since fallen back into the compressed area. This could be a 'return to compression' that grants a second chance to buy or it could just be a 'wiggle' - we can't tell which:

Midcap, iEurope, China comps

Overall this gives no strong signal either way but we assume that you covered shorts in the US on this compression break and now we wait.

Things are a little bit clearer in the Bond markets. Here, US Treasury bonds and notes compressed in recent days as also reported in the last edition - we update the same chart below. The gloomy prognostications of M Draghi today caused a sharp rally in most bonds followed by an apparent failure. This is a classic 'HED fake' in which prices break out from a compression one way, only to drop back into and then through the compressed area in the opposite direction. This looks to be a very good short-sale opportunity and we would start right now, adding more if and when the US bond market closes below those compressions (the low point of which is 154.00):

Bonds compress update

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