The bounce that we expected is happening in selected assets, as written in the last edition. There have been a few more signals to report that tend to confirm that the bounce will continue and a couple of warnings too. First, some bottom extensions signals in Korea and Australia in the last few days, after some nasty weakness:
There have also been a couple of promising weekly bottom extension signals in these two ‘Tekkie’ indices:
There has even been a weekly-scale bottom extension in a Russian index ETF (second chart below) which shows that the crowd in Russia’s domestic market is all ‘sold out’ for now. This could be a clue that the standoff on Ukraine’s borders will not escalate further, at least in the hearts and minds of Russian traders. China, on the other hand, has just broken down hard from a weekly-scale compression. so all is not universally rosy in the international market garden:
Lastly, let’s look at the likely end of the bounce. The most promising candidate to end it remains the cluster of weekly-scale compressions in a Small-Cap index that we have been describing for many weeks. Compressions are ‘attractors’ in the mathematical sense of the word. In markets, they take the form of a compression signal that portends the start of a move soon after they form and which begin with a ‘break’, which may be in either direction. The compression/attractor then ‘attracts’ the price temporarily back to that same area before the move then continues. This is a reliable phenomenon and we have seen it frequently in the 25 years since we discovered it.
In trading terms it means that we get two chances to enter a new move – one ‘at the break’ and the next when the price returns to the compressed area. In the case of the Small Cap index shown here, sell all longs in US markets as the price approaches the level of these compressions (starting about 4% above here) and reverse into shorts.
Things are more complicated in Europe as the Eurostoxx index shown here has already bounced very close to its own compressions. It seems unlikely that the US could rally by 4-5% without Europe moving up a bit, but anything is possible. Weakness could resume earlier, so keep protective stops on longs tight – we are only ‘playing for a bounce’ here after all:
All signals generated by software produced by our friends at Parallax Financial Research www.pfr.com
