Many US equity indices have made compressions in the last two days, here are two examples, one of which is the S&P futures contract that has been trading below the compressed levels already today:
A few European indices have also compressed, most recently the Dow versions of the UK and Norway, shown here with today’s trading so far, which is also below the compressed levels:
We have been expecting a ‘last gasp’ rally in US equities and some kind of rally in Europe too and these new compressions offer a chance to re-examine that view and to tighten protective stops. There is a large equity market turn due in the next few days and regular readers will know that turns have the effect of magnifying the effect of compressions if they coincide. This upcoming turn is close enough to these fresh compressions to have exactly that effect and so the current tight range is unlikely to last much longer. It is too early in the trading day to conclude that these markets are breaking down from these compressions but watch carefully as the day proceeds toward the close. The story in Asia is different…
In many far-Eastern markets, recent strength has led to top extensions:
These tops argue that some weakness (or pause) in the uptrend is likely but we have also pointed out that many of these Asian markets are in quite new uptrends that should last a while after breaking upward from weekly-scale compressions:
Japan’s uptrend is quite mature but there has been no daily-scale top extension while China and Korea have only just started their trends. As we mentioned in a similar example from the currency markets in the July 30th edition, when weekly signals point one way but daily signals show that a counter-trend reaction is likely, we give priority to the weeklies. Dips are possible in these Asian markets but should be bought.
Elsewhere there have been more extensions in currency pairs involving the $. The New Zealand $ vs US$ extended and so did the $/¥ futures. Neither warrants adopting a short $ trade for reasons given on the 30th July but both show that a pause or dip may be coming soon – we will advise buying the US$ on that dip, probably against the €, as already reported, at a rate around $1.3550 for 1 €uro if it becomes available in the next few days.
