There has been a further small rise in stock markets, as we warned was possible in the last edition. There has been similar renewed buying in bunds and grains and now we start to see top extensions. As usual, these signals are likely to mark the end of the current rise in these markets:
Accordingly, even though these are only scattered individual signals, there is a theme here and we would take profits on the long positions in stocks that we advised in the June 4th edition and on long positions in grains that you may still hold from our advice in the May 10th edition.
The evidence is a bit thin to warrant short-sales in any of these markets but if you do try, bear in mind the usual caveat that top extensions mark the end of rallies, not necessarily the start of drops. In this case, many equity markets are pushing up against recent highs, so there is likely to be resistance here, which adds to the bear case. If you do sell short, try doing it on small rallies and don’t risk much. We wouldn’t sell bunds but would look instead at other European bonds or indeed US Treasuries. As for grains, we would prefer to sell cotton, as it has not rallied despite making a bottom extension at the same time as one in soya meal (see May 10th edition again).
A brief comment on energy markets, which made bottom extensions earlier in the month (see June 4th edition): These extensions marked nearly the end of quite steep drops but there has been no real rebound – merely a period of ‘flat’ trading, as this chart of Brent crude shows:
The most recent of these signals was 12 days ago, which is getting a bit old. It is still possible that a rally can develop in the few days of active signal life left, but the activities of those Komedy Kommandos in the Persian/Arabian Gulf have not sparked the panicky short-covering rally that might have been expected. Markets that fail to go up on bullish news are inherently weak, so we would not be surprised to see prices fall back down to the bottom of this little range and then keep falling further, soon.
All signals courtesy of software supplied by our friends at Parallax Financial Research www.pfr.com
