- New Science in old markets -

Bonds and stocks

We recently reported a compression signal in the US 5-year Treasury note that we thought might mark the start of an up-move in US bonds. We had already called for the end of the bear market, near the lows, but that doesn't mean that an up-move must start immediately. Some kind of 'bottoming' will be necessary before that happens as the chances of a 'spike' low (also called a 'V' bottom) are small. Nonetheless, we keep looking for buying opportunities and this compression alerted us to an impending chance, if it breaks upwards. It did, after several more compressions. The 10-year T note has also compressed and moved higher. A 'false start' is still possible after such a long decline but we would buy US bonds. We may have to try this a few times before it works, so don't risk much on each try:

It looks like an up-move has begun

We have been stalking the US stock market, trying to find a place to sell it. We reported in the May 10th edition that some important US indices had pushed down through support that had held for over a year and that a downtrend had thus begun. That downtrend is still in force and the relevant index has just (as of noon NY time on the 27th May) rallied back up underneath the compressed area. You might want to wait for some kind of signs of failure but this level is where we would try short selling:

When prices return to a broken compression, sell

It is worth repeating that the reason for this advice, as always when prices return to areas where compressions have occurred is because compressions are 'attractors'. There is more on this in our user-guides, but briefly put, any dynamic system that tends to develop feedback loops (as markets do) also produces the many consequences of feedback, such as self-reinforcing trends and/or mean-reverting behaviour and a marked tendency to form attractors. These are areas where the price can get 'stuck' for prolonged periods, only to launch into a new trend punctuated by one or more temporary re-visits to that same area. That is why we trade these compression signals as we do

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