The recent weakness in US stocks has brought indices down to levels where we expect to find some support. There has been only one bottom extension (so far) but several indices are re-testing support provided by old compressions, as is normal:
These two different signals both point in the same direction – that the drop in US stocks should pause or reverse from around here. It does not mean that a rally will start immediately and there is probably a bit more time to decide what to do.
Tactically, we would now start trading from both sides of the market – buying dips and selling rallies for trading purposes. Strategically, it still seems likely that there will be more weakness to come (or that a trading range will form with the chance of an eventual down-move) so it may be sensible to keep any short positions you may have taken on our advice just before the drop began with a protective stop-loss near or just above the market August highs.
All signals courtesy of software supplied by our friends at Parallax Financial Research www.pfr.com
