The drop in stocks has now produced many bottom extensions, including some in major indices. Cover shorts. There may be more weakness to come in due course but the odds have shifted sharply in favour of an end to the current ‘leg’ down.
The Dow, Nasdaq, S&P500, S&P400, S&P100 and Russell 2000 have all extended and so have many US sector indices. The FTSE has also generated a signal as have the national indices of Germany, France, Sweden Austria and Belgium. all these signals look the same so by way of example, here are two US indices and the FTSE:
Canada and New Zealand have also extended as have Hong Kong, Singapore and South Africa, which last three are shown next. We omit the others to avoid ‘signal fatigue’. China has not extended, but neither has it dropped much in recent weeks.
As everyone knows, it is dangerous to try to ‘catch a falling knife’ by buying fast dropping markets, but by all means do start to buy some long positions here. Today we are due for the largest turn of the month (see the current Alpha Mail on the front page) and this combination of bottom extensions and a big turn is a powerful ‘buy’ signal. It would be wise not to buy everything at once however as not all markets will move together in the ‘out-run’ period from these signals. It is customary for markets to diverge and we will try to read the runes as that process unfolds, as usual.
So keep some ammunition ready, but this bear campaign which started with our remark in the September 25th edition that “this new evidence is starting to point to an impending down-move of some importance” has now concluded.
All signals courtesy of software supplied by our friends at Parallax Financial Research www.pfr.com
