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.