There have been top extensions at a daily scale in Mexico and Brazil in the last two days. These two slightly neglected markets have both risen strongly since mid-May on the prospect of increased market share for their commodity exports now that both their Ukrainian and Russian competitors are having trouble getting their goods out (to say the least).
There have been few such beneficiaries of Putin’s war on Ukraine, so it is worth examining what this might mean for the other world markets, if these two outliers are now extended. In such circumstances we hardly ever advise selling sort in the instruments that have made top extensions. These signals mean ‘no more up’ not ‘beginning of down’ so the usual result is a period of sideways, ranging activity while the fundamentals catch up with the price. At the end of that ranging period we often then get a compression signal that will provide the clue as to what will happen next. Compressions occur at the beginning of trends, as seen in the Mexico example above and we wait for the break to tell us which way that trend will be.
What we do find however, because everything tends to be connected to some extent, is that when markets that have been rallying begin to stall, those that have been range-trading can start to drop. We have outstanding short recommendations in European indices (we left the choice to you, advising you to choose the laggards to sell) and that advice may now have some new life in it. Here’s some weekly-scale analysis of a pan-European instrument:
In the US equity markets there is still no clarity, although we continue to note that if Europe drops, the US may also weaken. The relevant signals that have kept us sidelined since the March 23rd edition are still relevant- they are all in MidCap sector indices. Here is an update, where we tell the story on the charts:
All signals generated by software produced by our friends at Parallax Financial Research www.pfr.com
