There have been a number of compressions in various stock indices recently, which are either breaking or have already broken, upwards:
All these three shown above are still ‘range-bound’ because they have yet to make new highs above those of recent weeks, BUT these compression breaks can and do occur before the range is penetrated – in other words they give early warning of such a break. The best way to use compressions remains ‘patient stalking’ as in the Australian example above. When a break occurs it shows that market’s likely next direction – this will be in the direction of that break. Usually there is a brief return to the compressed area (as is happening now in the Aussie) which offers a better chance to enter a trade. That index should not penetrate the compressed area again before resuming its trend, so a close stop can be placed on new longs, just below 400.00 in this case.
Meanwhile, in pragmatic Asia the squeezing of the vice in Hong Kong has been met with market indifference and an upward break of compressions:
Which all probably sets the scene for the next ‘leg’ up in the domestic Chinese market too, which has been stuck in a range for 6 weeks.
Elsewhere, there have been some top extensions, particularly in Korea, which never stays in a trend for long, balanced as it is between prosperity from its remarkable success over decades and annihilation from its alienated cousin – an early example of China’s malign influence since 1948 which we would all do well to remember. If you want to sell a stock market, perhaps as a hedge against other longs or as an outright short, sell this:
There have also been some top extensions in US indices but only at a sector level, one weekly and three daily:
These are probably not sinister as the likely outcome is some ‘rotation’ in which the market keeps moving in the same direction (upward) but that different sectors will now lead the way up, while these will pause or pull back. Another corollary of this behaviour is that the whole market (measured by say, the S&P500) may become more volatile. This seems to be happening already, so be braced for more.
Lastly, Gold.
This has extended at both daily and weekly scales, so we think that the uptrend that we warned had started on June 25th has now ended. Tuesday’s sharp drop rather spoils this advice as we like to tell you before these moves, not after them. Sorry for not pointing these signals out sooner. The advice remains – sell rallies.
All signals courtesy of software supplied by our friends at Parallax Financial Research www.pfr.com
