There was a sprinkling of bottom extensions in European stock indices yesterday and today is the first day on which we expect a turn (see the turn calendar on our front page). We usually buy bottom extensions without much encouragement and when they occur at a turn, we are very encouraged:
It is worth repeating the warning that we wrote last week, pointing out that closely-spaced large turn events (as we expect in the days to come) usually mean increased volatility, meaning wide (and maybe wild) swings. Be careful.
The two markets shown on the top row of the group above also made weekly-scale bottom extensions last week, but we waited before recommending this ‘buy’. We are less keen to buy markets which have such weekly-scale bottom signals as the risk of severe further drops remains until the next week has passed – these signals can come a few periods early, after all. There will probably be another weekly-scale signal in each of these that we will only see at the end of the week:
There were similar signals in the lat 24 hours in Singapore and Hong Kong but only at a daily-scale. The lack of weekly-scale equivalents may not be significant as these signals are hard to generate and we only ever get a few at a time, even at major bottoms and tops:
This doesn’t mean that every equity market should be bought as the uniform mood swings that happen at times of crisis (so-called risk on/risk off to lazy commentators) soon diverge. In particular, China is falling away from a daily-scale compression signal and the most we would expect there is a bounce back to the level of that compression. In fact this is normal and we would sell any such bounce:
Elsewhere, enthusiasm for the dollar and other flight havens has produced other extensions. The $/€ rate and an index of gold mining shares have both produced signals, which argues that the general sense of panic that has gripped the world since the Malignant Midget started throwing his weight about will ease hereabouts:
All of this may easily be derailed by a serious escalation in Ukraine, but the state of markets probably already discounts the severe sense of worry, fear and anger in the world and some potential worsening of the situation, so we are relaxed about these recommendations. It is worth pointing out (as others have done) that this ill-judged war is the result of one man’s megalomania and he will not survive a failure. His fate would be that of Mussolini, brutally killed and hung from his heels in public. The Petulant Pygmy knows this of course and may well be prepared to take the world down with him if his end seems near. Let’s hope the good sense of those Russians who don’t admire him (including many in the FSB, judging from the warnings of imminent assassination attempts they pass to President Zelenskyy) will step in front of that awful eventuality. Свергнуть тирана!
All signals generated by software produced by our friends at Parallax Financial Research www.pfr.com
