The UK and German stock markets both produced daily-scale compressions yesterday, which seem to have broken downward today. It is too early to tell if prices will still be trading down at the end of the day, which would confirm the break, but we have already put close protective stops on long positions in Eurostoxx and FTSE.
Two commodity markets also made top extensions yesterday – natural gas and sugar. This last is a repeated signal that has been recurring for three of the past four days:
Our usual precautions apply when considering top extensions. These indicate that an up-move is over but not necessarily that a down-move will immediately begin. Sell short cautiously when such signals occur, be prepared for some time to pass before weakness starts and trade accordingly. There are ‘spike’ tops in some markets sometimes but they are rare – more often the ‘top’ is formed over time.
RE
