- New Science in old markets -

US indices compress, Japan too. Bonds return to compression. Grains make bottom extensions.

Apologies for our silence since the June 24th edition, due to unavoidable circumstances. There have been daily-scale compression signals in two of the main four US equity indices, so (as usual after a compression) we expect:

  • an increase in volatility or expansion of range that will probably mean:
  • a new trend for a few weeks.

Our advice in that 24th June edition was that a bounce was likely in world equity markets, which might be worth trying to catch by trading from the long side, but that renewed weakness should be expected within a few weeks. A downward break of these new compressions might be the starting gun for that weakness. As ever, we do not know the direction that a market will take after a compression forms, so a further rally is equally likely - markets in compressions are on a 'knife edge'. Japan has also compressed and seems to have (just about) broken upward today. We have been looking for a chance to buy Japan and this could be it. We always prefer to wait for a clear break of a compression and then take a position when the price re-visits it, but this could be an early chance, if entered with a close stop. Charts:

US and Japan compress. Buy Japan, but it may re-compress, so be careful

Elsewhere, bonds have fallen back a little in the last few sessions. We have been bullish since bottom extensions formed in several ten year notes around the world (see pink-tipped extension in first chart below) and identified some resistance in our last edition, right about where prices stalled. Now, 30-year futures have fallen back to a recent compression (second chart) which is where we expect support and where we would re-buy. Gilts are also compressed (third chart) and have yet to break, but if they too break upward, expect a rally in all bonds. The prevailing sentiment is very bearish, so a squeeze seems likely, just from common sense.

We have been bullish of US (and German) government bonds. Try buying again

Grains fell into bottom extensions pretty much across the board, from which they have now bounced strongly. These signals are all still well 'in date' so we would keep buying dips for the next two or three weeks.

Extensions caught these lows well

All signals from software supplied by our friends at Parallax Financial www.pfr.com