Technical Weekly 29122006

I wish you all a healthy and successful 2007!

The table below is a technical ranking based on 3 different rates of change (1,3 and 6 months).
Momentum leads price, the challenge is to identify emerging strength and weakness with accuracy and consistency.
While major markets moves tend to be global in scope, some markets (sectors) are stronger than other, enabling investors to maximize bull markets profits by identifying the leaders and avoiding the laggards.
That’s why the current ranking position is compare to the position n days ago (normally 1 week ago.)
As you can see, the recent performance of world stock markets sends a very clear message. The top quintile contains China, India and Russia, while the bottom quintile contains the largest most mature markets.

More generaly, the market is in a positive uptrend with breadth and volume confirmation. However, the combination of overbought price momentum and overly optimistic investor sentiment suggests that near-term caution is warranted.
For instance, on the Stoxx 600, 87% of the stocks are trading above the 200 day moving averages and the montly (long term) RSI is now oberbought.(see chart)
Two important sentiment surveys, the Sentix in Europe and Investors Intelligence in the USA highlight a significant rise in bullish sentiment towards equities in the last few weeks.
So technically speaking, there is a good chance of a pull-back in early 2007, before a resumption of the bull market.

The second message is that during the last months, equity and bond markets seem to be telling different stories, and they cannot both be right. Equities seem to see a high growth world with low inflation, whilst bonds predict a coming recession.
So it will be very interesting to see if the bund (in yield) is able to break above resistance (and the psychological level of 4%) in the coming days/weeks.

And finaly some stocks with good and bad momentums.(daily basis)