- New Science in old markets -

Asian equities update, a note on US equities, Gold & Crude

In the October 12th edition, we pointed out various bullish signals in Asian equity markets. We did not single out Japan for special mention, although it too has rallied since. Now Japan has provided a separate reason to be bullish - the price has just bounced off support from an old weekly compression - see second chart. Buy:

This has been a bull market & probably still is

We did mention China in that October 12th edition and there too has been a new development. Although the index we mentioned has indeed risen, it has just produced a weekly-scale compression. Compressions indicate a high degree of confusion among market participants and behave as 'watersheds' after which a new trend will soon develop. We cannot tell which direction the price will take, so we wait for the break. We often wait even longer, for the price to return to the compression after that break so we can take a position with minimal risk.

When a compression occurs after we have already advised taking a view (here, bullish of Chinese equities) we can use the compression signal to place a closer protective stop-loss. If this index pushes below last week's low by more than a trivial amount, get out:

New compressions can be useful when protecting profits

Meanwhile, we abandoned our long-standing advice to trade US equities from the short side in that same October 12th edition. The reason was the occurrence of some new compression signals at both daily and weekly scales in US indices. These signals led to an upwards break three days later, after a false move down in the daily version - see second chart below. That false move is why we rarely advise 'trading the break' and prefer to wait for the price to re-visit a compression before taking a trade, as in the Japan example above.

US stock indices broke upward

Meanwhile, there have been some signals in commodity markets. We advised buying Gold and Platinum at the beginning of October. Now Gold has compressed at a weekly scale, which means you should place a stop just below last weeks' low (see first chart below).

We have also been warning that the well-publicised rally in energy markets would come to an end soon, but we have not yet advised selling short. There has just been a weekly-scale top extension in WTI crude (second chart below) so this moment is getting even closer. We still don't have a 'trigger' to advise a sale, but you might want to start looking for one of your own - any sign of reversal should be taken as a sign to sell. Don't risk much at this stage, as energy markets can be very persistent in their trends. As the saying goes 'It can remain irrational longer than you can stay solvent'. We generally don't like selling markets merely because they have produced top extensions, as some kind of 'top' usually forms before any weakness can develop, so any high point that occurs hereabouts will probably be followed by some range-trading, which could be quite violent, as that 'top' forms.

Stay long of Gold with a stop. Watch for a chance to sell energy

All signals generated by software produced by our friends at Parallax Financial Research www.pfr.com