Technical Weekly 25052007

Equities
Last week I said that the market was overbought but that the trend was still good.
Now I think that the risk of a correction has risen.
Arrows (TD sequential and combo indicators) on the chart of the DJ Euro Stoxx 50 are signaling that the market is risky and that a bearish reversal may happen soon. We see the same story when we look at other indices.The chart of the MSCI World since the beginning of the year for instance is also showing “sell arrows”.

Others problems are: China is turning parabolic, bonds are falling, some lagging sectors or stocks are now outperforming (telecom) and recent advance was driven by a limited number of stocks.
So for conclusion, we can say that equity markets are at risk and quite mature but keep in mind that (as we said last week) the trend is still ok and buyers are still buying the dips when a correction occurs.

Bonds
On the weekly chart, the German bond yield is approaching the first target at 4.5% where some profit taking may happen.
But momentum is still rising and the yield has recently broken above an ascending triangle bullish pattern.

The US 10 year bond yield has also continue to rise over the last weeks and may soon challenge the psychological level of 5%.

Brent
On the last weekly I said that if the Brent was able to break above the 70$ level, this could open the door towards the 78$, which is the top of the trend channel.

Euro
No change. The Euro is still in the process of correcting its long term rise, which means that a deeper pull-back towards the major support line (red line on the chart) is a strong probability.
The first minor support is 1.33 (red dot line).
The long term trend is still up for the Euro.