We have been bullish of US and European equity markets since the September 26th edition. We added Asia to that bullish view on October 19th and now we are starting to see reasons to jump out.
There have been top extensions in two ‘minor’ European market indices – Italy and Austria. Signals from these mostly unobserved markets often give us early warning of more general changes, so we pay attention:
US markets have not produced top extensions and the picture there has been quite mixed. One of the bullish signals that we saw in late September was a bottom extension in the Dow, which has rallied about 15% (first chart below). The Tech sector (using the Nasdaq100 as a proxy) has barely rallied at all and that index has since made a daily-scale compression signal. It moved down from this signal (middle chart below), rallied back to it on Tuesday and fell away again yesterday:
Regular readers will know that this ‘return to a compression’ gives a better chance to enter a trade than scrambling to get in ‘on the break’, so this is a good selling opportunity. It is entirely possible that the Nasdaq will fall without taking the other US indices with it, as happened in the last tech bubble-burst at the turn of the millennium. The Nasdaq peaked in March 2000 and had already seen a drop of 40% before the S&P re-tried the highs in September that year:
All signals from software supplied by our friends at Parallax Financial www.pfr.com
