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There is a turn due tomorrow in US equities, as warned on Dec 11th . The cluster of turns that comprise this event has only a small sprinkle of components from Europe, Asia and the rest so we are curious to see if it only affects American markets. This would be highly unusual of course as US markets tend to influence others much more than they are influenced but it will be interesting to watch. It is just about a grade 2 turn, 1 being the largest, 3 the least.

At the same time we are seeing some more top extensions in various world markets – most at a daily scale, but some have also occurred in minor markets at a weekly scale. The US has quite a few sector extensions:

Here are some more showing that the financial sector is a bit stretched, including the shares of asset managers. The sun has also been shining on airlines, for a change. This never lasts long….

There have also been top extensions elsewhere. Here are China, Japan and Spain. As the note in the Japan chart says, we don't like signals that come after a few days of market holiday as our arithmetic can be 'thrown off' a bit, although we left this one in as an illustration. There have been lots of new top extension signals in Europe, where such holidays have closed many markets for several days, so we have waited until 'clearer' signals came along. Those that think that Spain is still a country of 'siesta' should note that their market was open through most of the holiday period, so we regard this signal as 'good'.

This all argues for an imminent end to the current rallying tendency in equities with a good chance of a drop – we still have outstanding short recommendations in the US and Southern Europe (with close stops) and this is still our advice. The bigger picture has changed however. We have been following the Dow transport index all through last year as it formed a well-defined range making weekly compressions from time to time. This prevented any chance of whipsaw and helped us recommend alternate profitable long and short positions many times. Now it has made a clear break upward and so it seems that a new uptrend has started.

We warned of the possibility a couple of times in recent editions and when it happened last week the break was strong. This same index has now made a daily-scale top extension, as shown in in the first group of charts and also to some extent in the second group – airlines are part of the transport index and they too have extended.

This means that the likely outcome is a pullback that starts hereabouts, with tomorrow's turn probably marking the high of this first move, followed by another chance to buy within the next few weeks – daily extensions last a median of 17days but I would be surprised to see prices fall for that long. We will send a turn update in a couple of days, showing likely dates for this next ‘buy’.

Meanwhile, bonds and notes have been weak but the ten-year yield series has just made a weekly-scale compression. This means that this market is ‘setting up’ for a big move starting soon. We will watch and advise.