We have been advising a bullish posture in stocks for a few weeks and a rally has developed that has taken US equity indices up and out of their recent trading range. There are now a couple of reasons to expect a stumble in the rally hereabouts. The French CAC40 has behaved as a fairly typical European index and the rally has now brought prices back up underneath a pair of compressions that formed in late January, we expect this to offer resistance to further gains, as is normal when a compression is re-visited.
There is a similar situation in the Nasdaq, where prices fell from a weekly-scale compression (there were many of these around the world, most of them higher up than this one). This compression already stalled one rally and it will now hinder this one too. The sheer size of this signal in the Nasdaq – it spans 150 points – means that resistance is quite ‘fuzzy’. We cannot tell if the compression will be penetrated at all and if so by how much but it is definitely a looming presence. We would take some protection here, booking profits on long positions, tightening stops, writing call options as you prefer. There is a turn today as shown in the last turn calendar that may also have some limiting effect on the rally and this adds fuel to the argument that prices may falter here. Charts:
It is now possible to resume trading from both sides of the market as a range seems likely to form but it may be erratic so take profits prudently.
