Technical weekly 12022008

Equities

Equity indices remain quite weak and they will more likely retest January lows.

We are waiting for a major selling climax (capitulation) and a bottoming process to go long (buy equities).

Most significant bottoms are a several step process, as steep market declines usually do not reverse straight to the upside (’V’ recovery), but typically involve a period of backing and filling.

For instance, the last major bear market bottom which ended in 2002 (SP 500) involved a period of base building, as prices tested the lows not once, but twice over a several month period.

For now the market (investors) thinks on the possibility of a technical recovery or of the continuation of the bearish trend.

But it will still spend several weeks to decide.

The hourly chart below shows that the trend is still down for the DJ Euro Stoxx 50 and that trading indicators like RSI or Stochastics are neutral.

Bonds(yields)

The trend is still down with the 3.65% level as target.

The risk/return is not so good for bonds (lower end of the descending channel) and once the current fly to quality will run its course, we believe bond price will be vulnerable to downside risk.

Brent(Oil)

The Brent remains caught in a trading range (broadening pattern) between 87 and 98$.The long term trend is still up.

Euro

The exchange rate was not able to break above the 1.5 resistance level. The short term correction may continue to the 1.43 support level.