New Tactics Needed in European Equities According to HED Capital

By Richard Edwards, Managing Director of HED Capital

This Swedish equity index compressed* yesterday:

Ordinarily this would not be significant as Sweden is a minor market in Europe’s oversupplied continent. We think it is more important right here and now as many European markets have been range-trading recently after top extensions marked the end of prior uptrends.

Now that this compression has appeared, it presumably shows that others are also getting ready to compress and so a new trend is imminent. We have been expecting this to be a downtrend, as we have written often lately, but compressions can break either way so this is a time for caution. The range-trading has become quite violent ‘churning’ in recent days which may continue for a little longer. This makes it difficult to hold any position, long or short, so expect more uncertainty. As we warned at the start of this process the best posture is to hold a ‘core’ short, to cover some on dips and to re-sell on rallies. You should now stop doing that as any downward break is likely to lead to more sustained weakness. Similarly, an upward break would probably signal ‘one more rally’ in this long climb toward the highs that we have already been warned are about to occur by the occurrence of longer-term top extensions.

More soon.

 

* Explanatory Note: unlike conventional technical analysis our signals are sharply defined. A compression occurs after a trendless period, which may be a range but may also be a period of narrowing price action. When the compression occurs, that condition is about to break into a trend or a widening range – both are similar changes of state. Extensions are much easier – they operate like a very superior form of overbought/oversold indicator.

 

About the AuthorHED Capital Mangement

We at HED examine the interplay of market forces to predict the price movement of many different assets. These forces may be the strong slow pressures that drive multi-year trends or the immediate surges of mood in the trading crowd that push prices up and down over days and weeks. Our methods are built from first principles taken from the physical sciences and use traditional logic combined with modern mathematical tools, some of which were devloped by our friends at parallax financial research www.pfr.com. We concentrate on interaction, or feedback as it is sometimes known, measure the mood of the crowd using tools of our own devising and read the results. This is behavioural finance using science, not psychology. Our conclusions are often opposed to those of economists and our predictions are predominantly correct. http://hedcapital.com