We wrote in the last edition on 7th June that a compression had formed in one of the major US indices (Dow futures) which would provide a 'sell' signal if it broke downward. Two days later, it did and now you should be short. This comes after weekly-scale compressions had already broken down , so this could be a down-move that lasts some weeks further. Here are the same charts that we used in that edition:
Meanwhile China continues, largely unaffected by weakness in the US (and continued weakness in Europe) although we did see the forecast dip back to the recent compressions in today's session, followed by a rally into the close. That was another buying opportunity, as we also wrote in the last edition, and prices are now likely to rise more steeply for a while:
Just to remind us that markets are not a one-way street, China's is not the only stock index where we are not bearish. Switzerland has just made a daily-scale bottom extension and so we would not press on the short side of Europe here. We have recommended shorts in Europe since late March and we would now protect those shorts again, either by covering or by placing tight stops. We may even recommend buying for a bounce, but this is not yet enough evidence.
Ten-year notes also fell and made bottom extensions, as did Bunds. We have been trying to buy the whole US yield curve at five years and beyond for some while, as we believe the bear market to be over. We have seen monthly-scale bottom extensions in all the important maturities, so the crowd is all facing in the bear direction, but that is not the main determinant of price at the moment. We are at the mercy of the Federal Reserve's attempts to shrink its balance sheet and so we are fighting a large opponent. Nonetheless, as we have written several times, we may have to make a few attempts at buying before we achieve a success. This is another opportunity to buy. As before, don't risk much:
All signals generated by software produced by our friends at Parallax Financial Research www.pfr.com