We have been pointing out the generally compressed condition of US stocks for many weeks. There have been daily-scale compressions that have come and gone but the over-riding signal is the set of weekly-scale compressions in the New York Stock Exchange index, recently joined by some others as reported in the March 30th edition. After the gradual rally through the first ten days of April, prices have now risen from the bottom end of the range back again to the top. We suggested adopting a ‘half long’ position in that edition, wanting to see an upward break of these weekly-scale compressions before buying the second half.
Today, prices are poised to make that break. In the case of the Dow futures contract, they are already fractionally above the levels of the compression that occurred in that instrument but the all-important NYSE composite has yet to break:
This means we are poised with our fingers above the ‘buy’ button but have not yet pressed it. It is extremely dangerous to buy any market that is trading at the top end of its recent range as the risk of ‘whipsaw’ is very real. That is why we abandoned our usual practice of ‘waiting for the break’ when we recommended buying the first half of the position two weeks ago – to get a head start on what we thought would be an eventual break up. Now we will wait to see if that break is occurring to buy the second half. If prices are above current levels a bit nearer the close, or if you have reason before that to believe that prices will hold today’s gains – buy.
