The sharp one-week rally from the lows of early December stalled a bit yesterday and got some technical analysts quite excited by the 'failure from new highs and there was some talk of 'key reversals'. We have found such reversals to be among the least reliable tools in the technical box, but they do occasionally work. We have also seen a few new signals of our own which we report here. First, there has been a new weekly-scale compression in a Small-Cap index (third chart below). We also show an update to the analysis of the S&P400 Mid-Cap index and that of the 'main' Small-Cap index, the Russell 2000 (R2K) that we published last week.
This doesn't change anything for us. The uncertainty that is introduced by this fresh compression just serves to confirm our advice to tighten up stops, or take some other measures to protect profits on long positions. We gave a special mention to the FTSE when recommending those long positions ten days ago and this has now dipped back toward some support at recent daily-scale compressions. Add to longs on any further weakness, with stops below the support:
Elsewhere, the impression of doubt and confusion is reinforced by weekly-scale compressions in Ten-year US Treasury note yields and Copper:
There is much uncertainty in markets as we approach year end and it may be time to review some cherished assumptions. One of these is that the 'blip' in inflation in several parts of the developed world is indeed just a blip. Another may be that there is a looming structural deficit in Copper production vs ever-rising consumption. This has led prices to remain at historically extraordinary high levels for the last decade.
We are not advising any fresh action based on these observations - we never advise taking new positions while markets are compressing - but the multitude of weekly-scale compressions is often a warning that markets are about to re-price some aspects of 'value'.
All signals generated by software produced by our friends at Parallax Financial Research www.pfr.com