Dow futures made a daily-scale top extension yesterday:
This is the first such signal from any major US index in the recent rise in selected stock markets. We have been warning readers not to chase this up-move and this new signal is a strong reason to repeat that warning. Many of these markets broke upward from weekly scale compressions, as reported in recent editions but we have been reluctant to ‘climb on board’ for the new uptrend that this usually portends. Now, a dip or pause seems likely and a re-test of those weekly compressions would be the normal thing to expect. Here is an updated chart of the two US indices that we have been showing – prices have moved above the compressed levels, but only just, so there is still a chance of a re-compression, which may in turn lead to another re-visit to the bottom end of the Spring/Summer range:
Although this is the first top extension in the US, it is not the first around the world, as reported in recent editions. Accordingly, rather than waiting for some ‘churning’ as we would usually do on such a signal, we would sell now. We have been sitting on our hands for many weeks, so this sell advice means not only to exit any longs you may have but also to sell short. This is unlikely to provide a major opportunity as there is no important turn event due in these few days. A coincidence of top extension and big turn would make us sit up and take notice but this looks like a routine top extension, to be followed by either a drop or some sideways price movement. We will advise what to do with shorts as time goes by.
All signals courtesy of software supplied by our friends at Parallax Financial Research www.pfr.com
