In the last edition we forecast a bounce in US equities, which rose by 4% or so, from low to high point. The rally stalled, as also predicted, and now some indices have dropped right back, although others sustained some of their gains. The top of the stall occurred at a previously compressed area, as often happens, because compressions act as ‘strange attractors’, as we often point out:
In that last edition we also pointed out that a downward break of the weekly-scale compressions that have been forming in the Mid-cap indices would be a sign to ‘stay short’ rather than just trading from the short side. That didn’t happen, as the bounce took prices back up into the trading range and the both Mid-cap and Small-cap indices made fresh weekly compressions – see next charts, which also include an update on our most recent short recommendation, in the Nasdaq:
Keep trading from the short side. Once again, you might want to keep some ‘core’ short position, in case a downward break occurs and some more severe weakness then ensues. Of course we don’t ever know which way compressions will break, as they signify ‘knife edge’ moments of maximum uncertainty. We have a slight bearish bias, based on the monthly-scale top extensions reported earlier in the year and summarised in the last edition.
There have also been some signals that make us think that the rally in industrial commodities is running out of steam. Top extensions in Brent crude and a ‘return to compression’ in Copper both make it hard for prices to rise from here. Sell short Copper and look for places to sell the main energy contracts:
All signals provide by software developed by our friends at Parallax Financial Research www.pfr.com
