Technical Weekly 04052007

Equities
Sellers tried to put some pressure on the equity markets but as you can see on the hourly chart of the DJ Euro Stoxx 50, the trend is still positive.
Most technical indicators are overbought and are turning negative but as long as the support is holding, I'm not turning bearish.

I think there are still opportunities in the market and that, stocks, sectors or regions picking is key.
For instance, the chart of UCB recently turns bullish and technically speaking the stock may reach 50 EUR in the coming weeks.

On the other way, Spain (IBEX) recently gave a technical sell signal.
Strong support exists around the 13.700 level.
What is worrying to us is that this index was leading in Europe and that the pattern could be big bearish double top with a target around 12450.(+/-14% decline)

Bonds
I think that the German 10 Year yield will continue to consolidate between the 4.1 and 4.25% level in the coming days.
Because of overbought status the yield needs a rest but I still expect another rise to the 4.5% level in the mid-term and may be to the 4.85% level which is the target of the ascending triangle.

Brent
Still trading up, a rebound on the lower trend-line channel (in green on the chart) could be the trigger for a rise towards the upper trend-line channel.
On the other way a break below the 65$ could jeopardize the bullish trend with a downside risk around 60$.

Euro
In the last weekly I said that my first target of 1.36 was already reached and that I do not believe that the next target (1.38) will be reached immediately because technical indicators were very overbought.
Now we can see that the MACD indicator (lower panel) is bearish which means that the pull-back is already occurring.
The first support is located around 1.35.

IBEX

Spain (IBEX) recently gave a technical sell signal.
Strong support exists around the 13.700 level.
What is worrying to me is that this index was leading in Europe and that the pattern could be a big bearish double top with a theorical objectif around 12450.(+/-14% decline)

CHINA

China is becoming technically speaking very dangerous.

As you can see on the charts the move is becoming parabolic, movements like this one always provoke a sharp reversal back down.

New highs relative to the Stoxx 600

This is a list of stocks that recently made a new high against the STOXX 600.
Technical analysts consider new highs as a bullish event.
Click on the table to enlarge

Sectors and relative strength

In attachment you will find 3 Stoxx sectors.

The colour coding on the charts is based on the position of the relative chart.
Red below 20 and 50 days moving averages = bearish
Blue in between = neutral
Green above 20 and 50 days moving averages = bullish.
This give me a clear view of the changing sector rotation.
As you can see the industrials(chart1) are bullish and the telcos(chart3) are still bearish.(chart2)
The banks have just turn bullish.

How to find stocks with the best upside potential?

In these report of the STOXX 600 members, I scan 3 key ingredients :
1 the stock must be in an uptrend
2 Upside targets is at least 3 times further from the price than the stop (risk/reward>3)
3The target price is at least 10% away.
26 stocks meet this criteria today.
click on the table to enlarge

Top in June?

Last year in December
http://analysetechnique.blogspot.com/search?q=sequence and in the beginning of February I showed you some charts of the STOXX and the Dj Euro Stoxx50 based on Fibonacci sequence.














These 2 charts suggested that the 5 and final wave will resolve in June 2007 (top)
For now I don' t see any reason to change this scenario but the upside potential for European markets seems limited.

This long term chart coming from Metastsock is a long term trading system design to anticipates turning points, maximize long term return while reducing downside risk.
As you can see the results are quite good.

click on the chart to enlarge

So for now we can't deny the momentum is still to the upside for the time being.
The DJ Euro Stoxx 50, SP500, MSCI world all made new fresh technical breakouts last week.
Technically, it would be challenging to find fault with this new continuation rally on an increase in volume with higher highs and higher lows.
So, for me the conundrum is: 1)equity index are overbought (14 day RSI on the DJ EURO Stoxx 50 is above 70).
Being overbought has not always been problem the last several months, though it was a horrifying problem in late February.
2) Solid earnings have hit these markets, this coupled with positive M&A activity, you have the makings of a rally.
But the intermarket picture is worrying with long term rates on the rise and $ falling.
3)the trend is so strong with new highs on most indices but the danger for the equity markets may be coming from the Chinese market as the trend for the CSI 300 index is now turning parabolic and as the daily TD combo and TD sequential indicators are just recently flashing sell signals (this was also the case in mid February).

Technical Weekly 19042007

Equities
The DJ Euro Stoxx 50 validates a bearish rising wedge pattern, which means that a pull-back to support zone around 4270-4260 on the DJ EURO STOXX 50 seems likely in the coming days/weeks.

The overall trend remains positive (most trading indicators on buy -table1) but after a strong acceleration during the last four weeks, the index needs a rest.
The first support zone on the hourly chart is 4300.

The danger for the equity markets may be coming from the Chinese market as the trend for the CSI 300 index is now turning parabolic and as the daily TD combo and TD sequential indicators are just recently flashing sell signals (this was also the case in mid February).

Bonds
The German 10 Year yield recently broke through the 4.1% resistance zone but started a pull-back towards this zone. (short term sell signal –arrow on chart).
Nevertheless I keep my target of 4.5% for the coming weeks.

Brent
Last week I said that the Brent must first correct his overbought status before another up-leg can begin.
A rebound on the lower trend-line channel (in green on the chart) could be the trigger for a rise towards the upper trend-line channel.

Euro
My first target of 1.36 is already reached and the Euro dollar remains in a very strong bullish trend.
However, we do not believe that the next target will be reached immediately because technical indicators are now very overbought. (red arrow on the chart).
A consolidation is more likely in the coming days.

Inflation?

Ferrous Scrap was one of Mr Greenspan's favourite indicators.
Prices have broken up recently, which could suggests that inflation remains a risk for central bankers.
Copper and industrials metals index (GYX on Bloomberg) are also breaking out.

The expected inflation in the US is also rising.

Technical Weekly 11042007

Equities
The DJ Euro Stoxx 50 has already reached the target of the double bottom pattern around 4300.
The 4300-4320 resistance level is an important level to watch because after dropping in the first two weeks of March, markets are making a rebound towards the February-highs.
Every technical analyst knows that the time to worry is not on the initial decline but on the failure to post a new high.
The concern we see here though is evident; the 9 days RSI indicator is now trading above 70, which means we are now back into 'overbought' status.
Being overbought has not always been problem the last several months, though it was a horrifying problem in late February.
With both of those possibilities in view (breakout above new highs or correction of the overbought status), we are not going to take big “bets".
However, it does not change the fact that the momentum is currently with the bulls but to become more bullish, we need to break above resistance level.

Bonds
On the last weekly I said that a break above the two resistance lines (green and gold lines) would be very bearish for bonds.
You will find an update of this weekly chart of the German Government Bonds 10 year yield below.
For a more detail picture, we also include the daily chart which shows what it appears to be a new bullish (bearish) leg for yields(bonds).

Brent
Short term target remains 77-78$ in the coming weeks but the Brent must first correct the overbought status which is showing on the chart by the TD Combo indicator.
As you can see the two last signals were pretty accurate.
We advice to buy the dips when the price touch the up-trendline (in green on the chart).

Euro
No change, my targets in the coming weeks remain 1.36 and then around 1.38.
In order to keep the outlook bullish the rate should hold above the ascending up-trendline (red arrow on chart).

Be carefull on bonds?

It is a good time to watch bonds very closely because the Eurobund is approaching critical support around 114.7-114.6 (4.1%).
The first chart is a daily one showing a big descending triangle pattern with an Macd indicator already bearish.

My concern is that I don't see much support if this last one is broken down and more important to me it seems that the very long term uptrend (montly chart since 1990) is over.

Buy&sell Dj Euro Stoxx 50

All trending indicators on sell.


Bullish breakout.

Technical Weekly 27022007

Equities
The short-term rebound seems to be over as momentum is now weakening.
The hourly chart below shows the DJ Euro Stoxx 50 with three indicators (RSI,Macd and TD Combo) that are already in bearish mode.
As the index approach the February highs, most short–term indicators were already at overbought levels therefore short-term profit taking was a high probability.
As you can see the up-trendline is now broken meaning that I still believe there is a risk of seeing another bearish move (wave c on the daily chart) in the coming days/weeks.
The support level to watch for the DJ Euro Stoxx 50 is unchanged at 3900.

Bonds
The German 10 year bund yield rebounds on the 3.9% up-trendline ; this is clearly visible on the weekly chart below.
A break above the two resistance lines (green and gold lines) would be very bearish for bonds.

Brent
Closed at their highest level in more than two weeks, buoyed by mounting tensions between Iran and the U.K.
Technically speaking the Brent validates a bullish ascending triangle pattern (some people may seen an inverse head an shoulder pattern), which means that the short term target could be 77/78$ in the coming weeks.

Euro
Still bullish above 1.326 ; the outlook remains higher above 1.37 in the coming weeks.

DJ Euro Stoxx 50

After the quick &sharp correction a couple of weeks ago, markets were trapped in a narrow range for a while.
We are now breaking out of this range on the upper side (double bottom pattern-see hourly chart) looking for a retest of the 2007-highs.
The target of this pattern is above 4300 (4% upside potential)
Let's first see what happens near the February 2007 highs, because the previous support is now resistance on the daily chart.

Double bottom?

L'indice DJ Euro Stoxx 50 est toujours en phase de rebond à court terme.

Sur le graphique horaire on peut constater la formation d'une figure en double fonds.

Celle-ci ne sera toutefois validée qu'au dessus des 4100 points (ligne rouge).

L'objectif théorique se situant vers les plus hauts de l'année.

Attention toutefois, une cassure de la droite de tendance haussière active depuis le 15 mars risque de provoquer une deuxième vague de baisse surtout depuis que le RSI vient de valider un signal de vente.

Courbe des taux US

La courbe des taux US (différence entre les taux 10 ans et 3 mois-en vert sur le graphique) est inversée depuis l'été 2006.

Elle approche maintenant de niveaux ou le marché des actions (SP500-courbe rouge sur le graphique) s'est fortement retourné durant l'année 2000.

Technical Weekly 16032007

Equities
Markets have remained extremely volatile since last week and this should continue.
Investors will likely remain nervous in the near term.
Many of near-term price momentum oscillators are at levels comparable to other significant lows of the past few years. However, without confirming pessimistic extremes from sentiment measures, I believe there is still downside price risk.
That oversold condition is, in my view, the big question mark.
It makes any potential ounce likely to be a strong one, but we can get and stay oversold for long periods of time. If this is such a case, then being oversold actually has bearish implications.
Moreover, a break below important support level could trigger another wave of panic selling, in which case the next significant technical supports would be around 3470 for the DJ Euro Stoxx 50 (June 2006 low).( chart 1-DJ Euro Stoxx 50-weekly)

Equities should thus undergo more stress but technically speaking in terms of risk/return this is a poor time to consider reducing equity exposure, because most indices are now close to major supports on a long term basis.
This means that the bull market that started in 2003 is still intact.
Rather, investors should be watching closely supports levels (3900 on the DJ Euro Stoxx 50) and buying some stocks if the double bottom is validated and sell some stocks if the support is broken.(chart 2-DJ Euro Stoxx 50-Hourly).

Bonds
Technically speaking the 3.9% level is an important support zone.
This level is close to be broken and this could trigger another downside move towards the 3.7- 3.65% zone.

Brent
No change, after having broken up the medium term downtrend, the Brent faces another resistance line around the 62$.
Daily indicators seems to be rolling over which could means that :
- a break throught this level will not occur (at least in the near term).
- a re-test of the lows seen in January may follow.

Euro
Last week I said that as long as the Euro remains above support zone, the outlook would remain higher towards 1.326 short-term and 1.377 mid-term.
Now, the rate is breaking over resistance and since the volatility is very low, a (strong) upside move is likely.

Contrarian short term buy?

Put/Call ratio came out at 0.98, its highest level since October 06.
This level finds its place in the TOP100 of the highest Put/Call ratios.
Investors massively increased protection yesterday.

Head and Shoulders

In attachment a nice collection of fresh head & shoulders formations.
okay, the right hand shoulders are small in comparison with the left hand shoulders, but they are equal in heighth in most cases; so for me, these are valid tech formations, with the exception of the financials,(chart 3) they haven't broken their necklines (yet?).
But the fact that an overwhelming majority of analysts still sees the recent decline as a healthy, or a 'typical' bull market correction (what a difference with the other corrections in 2004 and 2006) makes me pay attention to the downside.
AEX (chart1 and 2): crucial support at 470/460; (470 = neckline HS & 460 = LT support line tested 4 times) falling below 460 means next target 410.

Karel Debie-Technical Analyst.

End of the rallye?

After the drop two weeks ago, we saw a very small recovery on the stock markets.
As the correction of May-June 2006, we see now a 2nd leg down (for the Fibonacci-lovers: the first decline stopped at the 38.2% retracement level of the previous rise).
This could bring us back very quickly towards the 3900 support level.

Fin du rally?

Attention de nouveaux flux vendeurs commencent à se manifester à proximité du retracement des 50%.(voir graphique)
Le rebond semble donc se terminer
Il y a donc un risque important de rechute et d’une seconde vague de correction.