Equity markets dropped in Europe yesterday, followed to a lesser extent by the US and hardly at all later in Asia. The context is one of continued compressions in the US, as reported in the November 24th edition. Here we pointed out that resistance would still inhibit rallies, that those new weekly-scale compressions had just formed in the US and that the likely outcome would be more range-trading before an eventual break into a new trend.
Some fresh daily-scale compressions were also forming in European equity indices at the same time and prices appeared to break higher from them into new uptrends. We recommended buying several in a November 26th edition but there was little follow through strength before yesterday’s general weakness. As advised yesterday, these drops were only enough to take prices back down into the area of the recent daily compressions, where we expect to find support. We advised tightening stops so that any close below compressions would liquidate the position and the Dutch market did just that. The German and British markets both closed within the compressions and so we still hold on to long positions there.
There is the potential for a break down to occur in these two markets and others too but there has also been a fresh compression in France, which means that despite all the excitement yesterday, these US and European equity markets show every sign of still being range-bound.
Here is the story in pictures, with sample signals.There are many US examples but the first chart shows the Dow Wilshire, as it is rarely examined closely:
Europe has not behaved uniformly – we expect this, which is why we pick Germany and its few surrogates for long positions and the more Euro-crippled Southern European markets (including France) whenever it is time to go short.
