There was a daily-scale top extension in US sugar futures yesterday. This is the first signal in that market since the bottom extension reported in the January 5th edition and means that all longs dating from that date should now be sold. You may reverse into short positions too but remember that top extensions are rarely as precise as bottoms, so establishing shorts over a few days may be sensible. There is another reason to be bearish here, which is that the rally has now brought prices back up to the old compressions shown on the chart. These will offer resistance, as usual. New readers please see the userguide for an explanation:
Elsewhere, US equity indices made a large number of compression signals yesterday, as did Japan. These indicate that a new move is imminent but that we can’t tell which way, so be careful here. We still have an outstanding ‘long’ recommendation in the S&P from a few weeks ago which has an open 30 point profit. this is obviously vulnerable as markets are likely to be volatile today as we wait for the ECB. We have sold longs in Eurostoxx and DAX yesterday, so exposure is greatly reduced. Stay long and we will advise further soon. Here are the S&P and Japanese compressions but the S&P is just one example of many seen yesterday:
The best way to treat compressions is to wait until they break to show the market’s next direction, which is what we advise here. There may be a chance to tighten protective ‘sell’ stops on S&P long positions, which are currently 90 points below market levels – we will comment later in the day.
