We have been saying since early January that stocks would be in a trading range, caught between bullish and bearish factors and unable to resolve this tension. That continues to be the case, although there have been quite big differences between the indices of different sectors (in the US) or parts of the world. Let’s look again at the charts of the US market we used in our June 1 edition, where weekly-scale compressions had formed. Prices have now moved up from those compressions in the examples we used:
This apparent upward break of compressions in the NYSE and Dow are the reason that we haven’t yet issued advice to sell US indices. The main tradable indices will probably continue to range-trade (possibly for many months to come) but the top extensions that led to that view are getting a bit elderly now. We are waiting for fresh evidence – perhaps some top extension signals at a daily scale. There have been several examples in individual sector indices, but not in any of the ‘majors’ so we wait a bit longer. The Internet index top that we reported in the June 6th edition has been joined by some others in Pharma, Consumer Discretionary and Retail but a few other indices have compressed or moved upward from compressions – probably into new trends, like the homebuilder index shown below. A selection:
In Europe, stocks have been divided by geography. Mediterranean markets all fell into bottom extensions on the latest Italian political developments, as reported in the May 30th edition and have now rebounded to some extent. An update:
Meanwhile the Northern European markets have been churning in tight ranges at or near their recent rally highs and the German Dax has now compressed. When this breaks, it may provide a clue as to the next direction for many other markets, so we watch closely:
All signals courtesy of software supplied by our friends at Parallax Financial Research www.pfr.com
