In yesterday’s violent drop and rebound throughout Asian stock exchanges, bottom extensions appeared. The bounce has already been significant but the inference is clear – the drop is ending and we may now buy these markets. Our attempts at long positions have been a bit battered lately, as we have been stopped out of several but we would now add more by buying selected indices in the East. The obvious choices are Japan and Hong Kong, for ease of trading plus the added advantage in Japan of being on the right side of the world’s most aggressive (so far) QE. Singapore is also worth including, even though we don’t have a signal there, merely because it has fallen only slightly and so therefore may have better bounce potential than the others:
The same market dynamics have led to extensions in some Yen FX pairs as the Yen’s recent rise appears to have become a bit over-cooked. The likely longer-term trend is for the Yen to drop due to the currency-devaluing effects of QE, so this is a good chance to sell some. Choose whichever pair you like but our favourites would be either the £-Yen or the $-Yen. We have been short of the £/long of the Yen and would exit the remainder of that trade now, reversing it or buying $/Yen instead.
It remains to be seen what a bounce in Asian stocks would mean for Europe and the US. we are still holding on to some longs in the US in the form of the ETFs that were recommended in the June 18th edition, which are ‘timing out’ today. There have been a couple of other sector bottom extensions in the US lately, both in the extractive industries of mining and oil exploration. These are such unfashionable sectors that it is tempting to buy them just out of contrarian stubbornness, but we have our signals to rely on. Buy them, to replace the existing ETF positions and the S&P that was stopped out:
