Buy&sell Dj Euro Stoxx 50 and DJ Industrials

"click on the tables to enlarge"

$/€

Après avoir validé un signal d’achat fin février sur une sortie haussière un forme de triangle ascendant, le taux de change semble vulnérable à une prise de profit.
Voici pourquoi :
- l’objectif de la figure haussière (1.56) a été largement atteint et dépassé.
- Les indicateurs de tendance sont surachetés sur tous les horizons de temps (mensuel, hebdomadaire et journalier)
- Sur le graphique journalier ci-joint on peut observer un signal de vente récent sur le RSI et sur le TD Combo (nombre 13-flèche sur le graphique)
A ce stade toutefois, rien ne permet d’affirmer qu’un retournement majeur en faveur du $ se produira bientôt, mais il est assez clair qu’une correction vers la droite de tendance haussière au environ des 1.55 est une probabilité importante à cours terme.

En cas de rupture de cette droite, un retour vers le niveau des 1.49 est possible.

Bear trap?

As I said in the previous weekly that: in the short term, most indices are caught in a trading range and are testing January lows.
In the event of renewed panic selling, like in mid-January, I think that the correction could extend below this level.
However, I suspect they are trying to bottoming out in the coming weeks.
And now I think that with the making of the new low on monday ( panic selling) and the nice up-move yesterday, that the monday’s downside acceleration was probably a bear trap.
I also think the market is still caught in a trading range, after all March was already the fifth month down and money could flow from gold and oil (double top on the CRB index) back to stocks and into the dollar.

Technical weekly 14032008

Equities

In the medium term, stocks are caught in a bear market.

The main reasons for that are: continued inflationary pressure, a coincident bull market in gold and commodities (switch from soft to hard assets) weak earnings growth and outflow in equity funds.

In the short term, most indices are caught in a trading range and are testing January lows. In the event of renewed panic selling, like in mid-January, I think that the correction could extend below this level.

However, most sentiment surveys now highlight extreme pessimism on equities and as I said last week a recent low risk buy signal was made by TD Combo&Sequential. In the past, such extreme pessimism has often coincided with significant short term bottoms.

Bonds

No change, bond yields trade now close to major support.(3.65%)

The risk/return is not good for bonds right now but a break below this level (which corresponds of the 61.8% retracement of the last bull move) could imply a downside move towards 3% for the coming months.

Brent

The Brent is now close to our 112$ target. I suspect oil prices is vulnerable to pullback as crowd sentiment is now extremely optimistic.

Euro

Also close to our target of 1.56, the exchange rate is now extremely overbought and a correction may follow soon.

Smart&dumb money

The 2 charts below show the trend of the smart money (black line) and the trend of the dumb money (yellow line-small traders) for the SP 500.(traders commitment)
On the first one you can see that the smart money became short in mid 2000.
In the second one you can see that the smart money were selling equities since end September 07 and became short recently.

Yesterday, the fed announces a continued liquidy boost.
Just in time! The SP500 rocketed higher, it was a very bullish session and the index was able to rebound on a very important support level.
Do the fed look at charts, I don’t know but this could mark the start of a more sustained rally.
Long term momentum indactors are deeply oversold and sentiment indicators are pessimistic with clear signs of capitulation among retail investors.
Economists are very bearish and most of them think the US economy is already in recession.
This is good news!According to Ned Davis Research, the market bottoms in recessions have been followed by median gains for the SP500 of 15% 3 months later, 23% 6 months later and 34% a year later.
Moreover, since 2000, technical analysts have noticed that a significant trend reversal has always occurred during March: major high in March 2000, low in March 2001 , high in March 2002 , major low in March 2003, high in March 2004 , minor high in March 2005 and minor low in March 2006.

La bourse ou l'économie?

La plupart des grandes banques se basent sur un scénario macro économique pour anticiper une hausse ou une baisse des marches d’actions.
Pourtant on lit et on entend souvent que la bourse anticipe l’économie.
Les deux graphiques ci-dessous sont une façon objective de répondre à cette importante question.
Ils comparent le S&P composite et le cycle économique mesuré par le “National Bureau of Economic Research”(http://www.nber.org) depuis 1900.
Les lignes verticales rougent indiquant les contractions (points bas) et celles en bleues les expansions (points hauts) du cycle économique en cours.
Pour l’indice, les flèches rouges indiquent les creux et les bleues les pics.
On peut clairement remarquer que la bourse anticipe bien l’économie dans la plupart des cas.
Les trois seules exceptions en plus de 100 ans se sont produitent pendant les deux geurres et en 2001.
Les graphiques et les commentaires sur les graphiques proviennent de M.Elio Zammuto.(http://www.the-intermarket.com)

Technical weekly 07032008

Equities
In the medium term, equity indices remain in bearish trends.In the short term, most indices are caught in a trading range and are testing January lows. In the event of renewed panic selling, like in mid-January, I think that the correction could extend below this level.

However, I suspect they are trying to bottoming out in the coming weeks but for now the only bullish signal we have is the recent low risk buy signal made by TD Combo&Sequential (green arrows on the daily chart of the DJ Euro Stoxx 50).

The behavior of the index during the next meetings will inform us about this assumption.

If the market is going to successfully test its January lows, it needs to rally soon with good upside volume.

Bond Yields

Bond yields resume their downtrend and could reach the big support zone of 3.65% in the coming weeks.

A break below this level which correspond of the 61.8% retracement of the last bull move (September 2004-July 2007) would imply a downside move towards 3% for the coming months.

Brent

The recent breakout through the psychological 100$ resistance zone triggered an upside acceleration.

The target of the bullish broadening pattern is around 112-113$.

Euro

On the last weekly, I said that if the 1.5 resistance level were broken up, the exchange rate could reach 1.55-1.56.

I don’t change our scenario for this week.

Equity market cycle

According to this chart coming from Morgan Stanley, investors psychology (technical analysis) is definitely something to watch in those market conditions.

A light in the dark?

Today, two of the best contrarian indicators TD Combo and TD sequential are flashing "a low risk buy signal" for the DJ Euro Stoxx 50.
Arrows on the chart indicate buy and sell signals.

Why using now a technical analysis appraoch

Day by day one of the best research boutique specialized in behavioural and technical analysis were ranked second best research bureau in Europe for 2007.(more infos on DayByDay Independent Research)
This is not surprising to me, here is why.
The chart below of the Dow Jones Industrial suggests that a 17 year period of dorming followed by a 17 year period of intensity appear to exist.
Note that during the 1966 to 1982 last dormant period , volatility was very high.
This was a period when technical analysts outshine fundamentalist analysts because the buy and hold phylosophy breaks down.
Historical cycle suggest that this present dormant period should last until the years 2016-2017.
Warren Buffet doesn’t use technical analysis, however it is intereresting to note that he has long used the 17 year cycle in his investment planning.

Semaine du 25 au 29 février 2008

Only in french for now!