There was further weakness in Equity markets after we sent yesterday’s edition, followed by a strong bounce into the US closing bell. There were daily-scale bottom extension signals in the ‘big three’ US indices, as shown here:
In isolation, this would be a decent chance to buy these instruments, but the ‘senior signal’ is the breakdown of weekly-scale compressions in several other indices, most notably in this Small-Cap index that we have been flagging for some time:
This means that we still expect a bounce to start sometime soon, which will probably take prices back up underneath these compressed levels, at which point we will recommend a short-sale. We repeat yesterday’s advice: if you already sold short on the initial drop below these weekly-compressions on Wednesday, Thursday or Friday last week, stay short. If you did not, wait.
You may wish to trade briefly from the long side to try to catch that bounce. This is a high-risk tactic and you should not risk much on it. There is every chance that the initial drop has not yet finished and so you would be in danger of trying to ‘catch a falling knife’ and so quickly get stopped out. If you do it, now would be the moment (55 minutes after the US opening, as I write) as prices are currently dropping toward yesterdays lows.
One point in favour of this dangerous play is that today is the largest forecast turn day of the month – see the front page of the site for the calendar. A bottom extension combines strongly with a turn (see our userguide for why), so it may outweigh the risks.
There may be a better option however. We have not paid much attention to the ETF managed by Cathy Wood, figuring that she gets enough attention from the many deluded followers who attribute deep meaning to her Gnomic utterances. That ETF has now fallen very far from its peak and has just produced weekly-scale and daily-scale bottom extensions. Today’s forecast turn spans many asset classes, so it may be that this is the vehicle to buy for a bounce.
Lastly and even more oddly for us, there have been bottom extensions in Bitcoin. We hate this asset class, as we don’t think its even an asset class, but our analysis works well on it, as its movement is entirely crowd-mood-driven. There have been three bottom extensions lately, so maybe this too is a good vehicle to trade for the bounce. JUST THIS ONCE!
All signals generated by software produced by our friends at Parallax Financial Research www.pfr.com
