There have been a couple of tops in equity indices but not in any major market – only India and New Zealand (so far):
These signals from outside the main capital markets usually don’t mean much for the rest of the world but there are some worrying signs in Europe that might be more serious. Many European indices have been trading sideways for months and many have made compressions. We haven’t reported this much as we expected (and got) even more compressions as time went by. Dismal Covid economics fights negative interest rates and it has been a no-score draw so far. Now, the picture is shifting. Two examples to show you:
The Eurostoxx has made a break-and-return which regular readers will know is a common feature of our analysis. In this, a market forms a compression which then breaks into what looks like a new trend, but the market then moves only a little way in the new direction (here, downwards) and then reverses back to the area of the compression. This provides a chance to take a trade in the direction of the original break i.e. sell short, in this case.
The Swiss market has performed differently but with the same result. It compressed, then broke upward only to stall and then fall right back through the level of the compression. This makes the initial upmove look like a false break (HEDfake, we say) and hence this new downward break looks like the ‘real thing’.
Be very careful here as a further drop looks likely. We would sell the Eurostoxx short and maybe France, Belgium and Switzerland too. All are likely to move together in a down-draught, so other European candidates are probably just as good.
This says nothing about US indices, but please remember that the top signals that we reported in the August 31st edition were at a weekly-scale and so will last through November. We warned of the likelihood of bounces in the September 23rd edition but we may not get a fresh sell signal to re-short. If you covered shorts on that advice, sell any little rally now to re-establish those shorts as the overall bear campaign is still ‘live’.
All signals courtesy of software supplied by our friends at Parallax Financial Research www.pfr.com
