Technical Weekly 05102007

Equities
The stock market continued to gain ground and equity indices are now testing new highs but most of them are now overbought.
The powerful breakout from the inverse head and shoulders pattern confirms that investors have embraced risk once again.
In addition, seasonal patterns are turning favorable as we enter the best four month stretch of the year to own stocks.
I have also noticed some change in trends during the recent weeks.
Small caps stocks for instance have not benefited from the recent recovery in
equity markets.(chart 1 Stoxx Small-red line and Stoxx Small vs Stoxx-black line).

Banks have been the top performers this week while profit taking was seen on oil&basic resources stocks.
Does this sudden sector rotation mark the end of turmoil in the bank sector?
Maybe not. Take a look at the charts below.The first one is the bank sector and the bank sector versus Stoxx.(black line)

As you can see the relative chart is still bearish.
This seems to be a technical bounce in a downtrend.
The second one shows the basic ressources sector.
The overall trend remains positive but a correction is occuring due to overbought status.

Bonds
Yields may continue to trade sideways in the coming days/weeks but as long as the long term support rising trendline is not broken (arrow), I favour an upside target of 4.6%.

Brent
Was not able to make a clean break through the 78-80 resistance zone.

Short-term sell signals have just been registered, but the long term trend remains bullish.

Euro
Recently, the rate validates a bearish signal, which cancel our target of 1.44.
A lot of short term sell signals appear (red arrows on chart) so that a retest of the 1.40 is likely but I do not expect a major trend reversal.