Technical Weekly 09/03/2007

Equities
European and US equity markets prices trade now under the 50 day moving average for the first time since July of last year.
That plunge inflicted a lot of other technical damage too, like a clear break under an important intermediate support.
It is worth noting that many of these markets had been rallying themselves since June 2006 and were exhibiting signs of being overbought.
So a correction was expected but the problem arises when you fall more than 7% in week time. Not only is that far from being a gentle rolling downtrend, it also negates any decent use of your technical indicators : they all look bearish by that point!
This is the first time in months anybody had to deal with real bearishness.
Despite the market’s rebound this week, it would be very unusual to reverse such a sharp drop without a period of basing and back-filling, so investors should remain alert to the possibility of lower prices.
Nevertheless, in spite of the short-term damage done to the price charts over the past week, I think it is too early to be excessively bearish because the longer-term price pattern is still bullish (higher highs and higher lows) and the 200 day moving average is still rising.(magenta line on the weekly chart of the DJ Euro Stoxx 50).
Conclusion : because there is no evidence that a sustainable low has been reached, the recent stock market drop may have longer to run.However, the odds appear to favor a near-term rebound rather than a deeper plunge.

Bonds
Yields dropped to early year levels this week as the plunge in equity markets set off concerns investors will shy away from riskier assets.
Technically speaking the 3.9% level is an important support zone.
A break below this level could trigger another downside move towards the 3.65% zone.

Brent
After having broken up the medium term downtrend, the Brent faces another resistance line around the 62$.
Short terms indicators are now overbought.

Euro
The failure to break above 1.326 indicates a consolidation.
But as long as the Euro remains above support zone, the outlook would remain higher towards 1.326 short-term and 1.377 mid-term.