There have been a couple of top extensions in crop commodity markets and a break down from compressions in energy. These are both potentially bearish developments but there is nothing to see in the indices, only these scattered signals in the individual commodities.
The two top extensions have been in Cotton and Corn, which compete for similar acreage, so a similarity in behaviour at this time of year (after harvest, when planting decisions can still be made) is to be expected. Both have risen lately (or there would not be top extensions) and those extensions have ‘worked’ in that they have occurred at the highs, so far. These signals have the usual meaning, that the run-up has gone too far too fast for now and a retracement is likely and possibly some more serious weakness. Try a short:
Energy contracts have largely been range-trading, resulting in compressions which have now broken down in Rbob and WTI Crude:
These signals also have the usual meaning – greater weakness will come next, possibly (probably) interrupted by a temporary price return to the level where those compressions occurred. Sell these short too.
Nothing has changed in our view of stocks, which (in Europe) have fallen away from the compressions reported in the last edition and in America have fallen away from their failed attempt to make new highs. Stay short, but trade from the short side rather than staying short.
All signals courtesy of software supplied by our friends at Parallax Financial Research www.pfr.com
