There was a compression in wheat yesterday. This was at a daily scale as prices have been going sideways for about a month – more than enough time for a daily-scale compression to form, not enough for a weekly.
If our suspicions are correct and that a bubble is forming in grains, these compressions will form after periods of consolidation and then break upward as the next ‘leg up’ proceeds. Compressions also offer the chance to tighten protective stop on long positions, which can now be placed under the compressed area. There are sometimes ‘false’ breaks out of compressions – we call them ‘HEDfakes’ – so it is unwise to place stops that are too tight. Perhaps the best plan is to wait for the compression to break and if that break is upward then place your stop just under the compression. Some increase in volatility is a normal consequence of compressions, so watch out for quite an active market.
There was also a daily-scale compression in copper. This has compressed and broken on several occasions lately, leading us to recommend short-selling. That advice is getting a bit stale now and so we would use this latest compression to place a very tight protective stop on any remaining positions, even though we suspect that the ’line of least resistance’ is still downward in this and other industrial commodities. As the chart shows, today’s prices are already above this latest compression (as of 14.30 London time), so if prices close here or higher, we would exit.
To summarise our other outstanding recommendations:
Energy: Short in the short-term, because some daily-scale top extensions. Looking for some reaction to the rise that began
with weekly-scale bottom extensions. This short advice is also getting a bit stale and these markets have
‘flattened’, not dipped. Don't stay short for much longer.
Long in the medium-term because of those weekly-scale bottom extension signals.
Equities Short in the US since the top extension/turn combination around August 20th.
By implication also short in Italy/Spain, where our standing advice is to take any reason to sell any related market
as a signal to ‘short’ these two, due to our often-repeated views about the effects of the €
Long Germany as a longer-term play, based on those same € views
Bonds/bunds Advised covering shorts on the 20th at the expected low point around that date. By implication, longs could also be
taken at the same time. Bonds are now in resistance from an old compression but may still push higher.
Grains Long because of the quite strong likelihood of a bubble forming. Also:
Cotton Long because of some weekly-scale bottom extensions and some daily-scale compressions that broke upward –
this would be quite elderly advice by now, if based only on daily compressions but the weekly extensions have
more life in them.
Gold Long because of an upward break from a weekly compression. Top extension in Platinum at a (daily scale) more
recently points to a dip or pause in this uptrend, which seems to be happening.
US $ Short, because of broken daily-scale compressions in $/€ and $/Swiss. Support about 5-6% below here from an
older weekly compression in $ index
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