- New Science in old markets -

Top Extensions in US, Swiss stocks. Coffee correction

This edition was originally published 1 day earlier, on November 4th 2021, via email

The recent run-up in US stock indices has now produced some daily-scale top extensions, in the SPY and Nasdaq:

Two of the 'big 4' have extended

And in the S&P 100 (the OEX) and in Switzerland too:

OEX is an important '2nd tier' index. Switzerland has poor correlation with other European indices

This has the usual meaning - this latest run-up is overdone and will stall hereabouts. Whether there will be a reversal or just a dip/pause we cannot say - there is no significant turn due until mid-way through next week, so the market may simply 'churn' for a few days. We would take profits on any longs you may have and perhaps try an exploratory short. Don't risk too much and just 'trade from the short side', meaning take quite quick profits and look to re-sell any rally. This is the same advice that we maintained for many months until we withdrew it in the October 11th edition, anticipating this rally, which we think is now ending, at least in the short term. It is obvious that any dip in the US will probably affect other markets and that we have identified some support in Japan about 2% below current levels, from a recent compression that broke upwards. Buy at that level, if it becomes available in the next week or so:

If this index dips to here, buy it

Lastly, coffee. In the headline to our edition of Tuesday this week, we mentioned coffee but failed to include it in the body of the text. Sorry. We intended to point out that coffee had broken up from a compression and so would probably continue to rally a bit more. The situation is more complicated than that however as there was a weekly-scale top extension 16 weeks ago that will still inhibit rallies. We say 'still' because 16 periods is at the outer limit of the shelf-life of a signal, but their influence fades away, rather than ending abruptly. There may be a little profit left on the long side, but we will be looking to sell short in due course:

Long for now, short soon

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