World stock markets have rallied for the last few days, which seems to confirm the ‘churn’ of which we warned in the December 1st edition. The likelihood is that this will continue for a while longer, meaning that it is still possible to trade markets from both sides – sell short on rallies and buy on dips. We did not add (but think it obvious) that profits should be taken as available – trends may last only a few days before reversing. If equity markets make slight new highs during this process it does not mean that they will continue to climb upward – the trading range could be quite erratic and it is quite possible that we have not yet seen all of it. There could be meaningless higher highs and also lower lows than we saw being made midway through last week.
The major trend is still upward in US stocks but it is possible that the end is near. We have pointed out top extensions at all time frames – some of them repeats – which is typical of the last stages of a bull market. It is highly unlikely that a turn downward into a bear phase will start immediately after the end of an uptrend however as there is almost always a period of churn during which a top will form. This could be starting now and it might take a few weeks or it might take months but the main clue that a major drop is imminent will be a compressed condition (after the churning) that produces compression signals at a weekly scale. There are none yet nor even the preconditions for them so it is not time to adopt a firm bear view – the bull market may simply resume once this churning period is over. We still detect a background bearishness among commentators and fund managers and it is hard for prices to fall much when such bearishness abounds. On the contrary, the end of bull markets is usually accompanied by the ‘fear of missing out’ that leads normally sensible people to chase after rising prices. We are seeing this in bitcoins but not (yet) in stocks. A summary of the US and Asia:
In the December 4th edition we suggested that a lower-risk short sale could be made in the FTSE as it was nudging up against a compression that formed 8 days ago. Some better news from the Brexit negotiations led to a rally in the last 48 hours that has now pushed the price back up through that compression (circled below). As usual, when using old compressions as support or resistance levels to adopt trades we recommend a stop-loss if the compression fails to restrain the price. This compression did not hold the FTSE rally so there is no longer a reason to be in this short trade.
A bitcoin chart – there have been top extensions (or clusters of them) at all the high points since this chart began and we are in another such cluster now. More churning is due but higher prices will probably follow yet again:
All signals courtesy of software supplied by our friends at Parallax Financial Research www.pfr.com
