There were widespread daily-scale compressions in US equity indices yesterday. Here are four examples from a much wider range of generic and sector indices:
We have been sidelined in US equities for a little while, advising only that the markets would be range-bound and that the range could be traded. This remains the case but these new compressions warn that another sharp move is likely to be imminent, possibly within the existing broad range. Prices are nearer the top than the bottom but this does not help judge the next probable direction – compressions indicate that prices are on a knife-edge so we cannot tell which way that move will be. We wait for the break.
Meanwhile there are continued compressions in Europe too. These are not as widespread but here are two examples, from the French CAC40 and the German MDAX index of second-rank shares, where we currently have a recommended long position:
The situation in Europe is obviously similar to that in the US – ranging behaviour with no sure next direction but with a break due imminently.
Lastly, Japan has also compressed but seems to be breaking down as I write. This is odd as the aggressive nature of Japanese QE should be keeping shares buoyant there but the rally since the October lows has been no more robust than any western market. Sell short.
