The US equity market rose through the last few days of the year in what has become known as the ‘Santa rally’. The main Nasdaq index then compressed on Tuesday the 4th and dropped sharply yesterday. It has now fallen back into nearby support from another recent compression, shown below. New trends start at compression breaks, but we cannot yet say that a down trend has started as the market is also still compressed at a weekly scale. The trading range that we thought likely on December 9th has continued for a month and may continue further. There is a large hole under the market if this support doesn’t hold.
We already reported a series of weekly-scale compression in other parts of the market, most recently updated on the 14th December. Compressions indicate that prices are on a ‘knife-edge’ and can move up or down or simply become more volatile. Accordingly, our advice has been to keep stops tight on long positions in US equity indices so you may now be flat, depending on your appetite for risk. If so, stay flat until we see more clearly. If you are still long, the best new ‘stop-out’ level is a little bit below the support in the Nasdaq chart above – it ends at around 15,000.
Here is an update to the weekly charts we have been using to illustrate our view of the US:
Elsewhere, European stocks have been rising from compressions. We advised buying the FTSE (and other indices) at good support from old compressions on the dip in the November 26th edition, adding the Erostoxx and Dax on December 1st and there has been no reason to advise selling since then. There still isn’t, but we are obviously aware of the ‘contamination risk’ if US indices eventually drop from their compressed condition. Here is an update:
There has been a top extension in Taiwan, which is a warning that markets are always vulnerable to a dip. As we often warn, top extensions are usually not a reason to ‘run for the exits’ as any sudden reversal from up to down is rare. Spike bottoms are common; spike tops are not:
Meanwhile, Bonds have been weak. We have been saying since April 20th that Bonds had entered a bear market. That is, and will be, difficult to trade, as bear markets often are but we declared our intention of trying to find places to both sell and cover as the long-term move unfolded. Yields have just pushed up from multiple weekly-scale compressions, as this ten-year US Treasury yield chart shows. Watch out – there will be more of this coming soon:
More soon, on commodities, where we are starting to worry about the price of Soya, at these high current levels.
All signals generated by software produced by our friends at Parallax Financial Research www.pfr.com
