US stocks are falling away from the top extensions shown in the Feb 10th edition and the drop is accelerating a bit. Here is an update:
This probably means that the weakness we have warned about in equities has now begun and you should stay short. Stock markets rarely turn so easily however and it is reasonable to expect rallies along the way – in fact this may merely be the start of a ‘topping’ process that can last for many weeks. Trade from a short book but don’t be hesitant about taking some reasonable profits, in order to re-sell again later. There has even been a bottom extension in New Zealand which is not usually a leading indicator but then neither is the Russell 2000, which worked well in identifying the high point:
Bonds have made bottom extensions.
The sense that ‘something has changed’ is also affected by extensions that we are seeing in bond markets. Both these signals show that prices have probably fallen enough/yields have risen enough – they mean the same thing as these two measures move in opposite directions:
Elsewhere, some commodities are making top extensions.
There have been a number of ‘surges’ in commodity prices in the last few weeks as the prospects for a sharp economic recovery seem to grow brighter – vaccination being the main filament in the light bulb. These three are the most notable examples and they are all now extending. It is highly unlikely that these top extensions will mark the eventual highs that will be made (although it is just possible) because ‘spike tops’ are unusual, especially in multiple markets at the same instant. These signals just mean ‘watch out here’. Take profits on longs, try a short and so on. If a dip does develop from hereabouts, as these signals suggest it should probably be bought. A trading tip – if there is to be a general dip in commodities, it is probably better to sell short those that have not risen in this last ‘surge’.
Crude extends weekly, £ daily
Two more signals to note. There has been a weekly-scale top signal in WTI Crude oil, to go with the daily versions reported in this same contract (and in Heating oil) in the 11th February edition. This doesn’t add much to the existing view that this up-move in energy will stall hereabouts but it does mean that view will now last for many more weeks. Next, the £ has been strong lately and has now extended against the € and the Swiss. Only the €/£ pair is shown here. Expect a pause or pullback or more:
All signals provide by software developed by our friends at Parallax Financial Research www.pfr.com
