Technical Weekly 05022007

Equities
Since the beginning of the year, European equities have been trading sideways.This is clearly visible when we look at the intraday chart of the DJ Euro Stoxx 50, which is a channel with a slight upward bias.

This channel is interesting for traders because they can buy when the index is oversold and sell when it is overbought.
For long term investors however, this market is more a stock picking one. The table below shows the best and worst performing stocks of the Stoxx 600 since the beginning of the year.

After the strong rise of the last months, I have been waiting for the possibility of a pullback.
However, last week’s rally is putting serious pressure on the upper edge of that horizontal trading range.
In summary, I expect the market to continue to work higher, as there are no sell signals amongst technical indicators at the present time.
Bullish positions can be maintained as long as the major technical indicators don’t give sell signals.

Bonds
Bonds rally last week and a pullback to the 4% level on the German Government Bonds 10 year yield seems now likely.
My mid-term target remains around the 4.4% in the coming week/months but I view this move as a cyclical recovery in a sustained long term downtrend.
The monthly chart below shows that the overall trend remains negative on German bond yields.

Euro
The Euro-dollar is testing support around 1.29, it should state above this level in order to keep the outlook bullish.

Brent
Two weeks ago, I said that at least a consolidation and quite possibly an oversold bounce could occur in the coming days for the Brent.
And now, after this steep rebound, oil is facing resistance below the down trend-line from August 2006.
I will closely monitoring this level in the coming days as the momentum remains positive.