German government bonds (Bunds) have risen a lot in the last two months, from the bottom end of their recent range to the top again. Bund futures have now made a top extension and so should now be sold short.
The £ has suffered from an onslaught of negative comment about the dim prospects for Britain outside the EU and in particular about the poor negotiating skills of the UK Brexit team. This has pushed the £ down against the Euro, so that a Euro now buys 0.93 of a £ up from only 0.70 two years ago. This long erratic trend has produced several signals and now there is this new one. Buy the £, sell the Euro:
Elsewhere, weak grain prices have led to enough of a drop in corn to produce a bottom extension. This come soon after similar signals in wheat and probably means that this decline is overdone. A word of warning, however: The decline in wheat from the highs in has produced other bottom extension signals in an earlier contract that did not mark anything other than a one-week pause in the drop. Be careful not to let renewed weakness turn into a punishing loss, if it should occur. In the meantime, buy some wheat, some corn or both:
Lastly, the reduction in refining capacity in Texas caused by hurricane Harvey has pushed Rbob and Heating oil prices up, while depressing crude. This has now led to a top extension in the front-month Rbob contract during the trading session. We usually ignore such intra-period signals but the increase in price on the day so far is 5% and so we think it represents a chance to sell some of the further-out months short. The premium of cash over futures has stretched a lot in this rally, reflecting the likelihood that refining capacity will soon be restored when the floods abate. Try a sale here, but don’t sell September – it’s too risky:
All signals courtesy of software supplied by our friends at Parallax Financial Research www.pfr.com
