Technical weekly 22062007

Equities
The chart below is an update of last week’s hourly chart of the DJ Euro Stoxx 50.
As you can see the confluence of resistances was to strong and the index fails to break above those lines.

I'm forecasting a more sideways market for the coming weeks.
In term of seasonality the period between May and October is often flat.
During these sideways markets, active management strategies offer the best potential in terms of risk/return.
For instance cyclical sectors remain very strong, health care very weak and the relative performance of the oil&gas and techno sectors continue to improve.
On the sell side real estate (EPRA index) has recently made a substantial bearish top pattern.
Last week’s bullish reversal in equity indices in strong volumes suggests that investors continue to consider pullbacks as buying opportunities but on the other way sell signals highlighted end May on the daily chart are still valid.(see arrows on the chart for the last three TD Combo hourly signals-amazing!).

Bonds
Last week I said that yields were very overbought and that a short term pullback was possible.
Now the pullback is underway (possibily towards 4.5%) but I still believe that renewed strenght should follow towards the technical target of 4.85%.

Brent
The Brent could soon challenge the 75$ resistance zone but this could take time as most momentum indicators are flat.
In the beginning of July, oil will enter in its best period of the year (from July to September)

Euro
The rate rebounds strongly on the support level.
The long term trend remains positive for the Euro and a break above 1.345 could trigger an acceleration towards new highs in the coming weeks.

US YIELD CURVE AND SP500

I few months ago everybody was speaking about the inverted yield (black line) curve in the US.
There was a concern that the inversion may be bad for stocks.
Recently the curve moves into positive territory and nobody seems to care about that.
But as you can see on the chart over the last 10 years the SP 500 (red line) and the
yield curve have often moved in opposite directions(correlation = -0.056).

Some statitics

52% of the members of the STOXX 600 have a short term bullish trend and (more important) 80% of them have bullish long term trends.click on the chart to enlarge













Commodities are also bullish on all time frames.
Click on the chart to enlarge















Bonds remain bearish on all time frames.
Click on the chart to enlarge

Bull or bear?

We see a big battle in the European stockmarkets right now: first a quick drop and then an even quicker rally.
We are retesting the same resistance levels we saw two weeks ago: 400-405 for the Stoxx600-4600 for the DJ Euro Stoxx 50.
We are also still facing the same short term divergences, so we should stay awake and be careful on the short term but...
On the other the leading indicator in Europe (the DAX) is making a new high.
The conclusion of this : don't be focalised on the big indices, there are still lots of opportunities.(technical analysts love this kind of markets!)
For instance technically speaking I 'm bullish on techno and oil stocks but berarish on the EPRA index (real estate-see chart below)

Technical Weekly 15062007

Equities
Equity markets are recovery strongly.
This can be seen in the hourly chart of the DJ Euro Stoxx 50 which is showing a double bottom bullish pattern.(circle)
The long term picture is clear as it remains bullish; it is the shorter term that needs constant analysis and reassessment.
And the question here is: is the market sell off done now and is this a new buying opportunity?

I think a trading range is the highest probability in the coming weeks : as it remains difficult to find sell ideas but on the other way we do not forget that tops often take a long time to develop.
For now the index makes a classic pull-back to the resistance line that was broken last week.
On a sector basis Health Care continue to under-perform strongly while Oil&Gas and Technology are confirming their re-rating process.

Bonds
I don’t change my technical target of 4.85% for the coming weeks /months for the German 10-year bond yields.

But yields are now strongly overbought on all time frames, so that a short term pullback is possible.

Brent
No change, still bullish above 70$.
The Brent could soon challenge the 75$ resistance zone(rectangle on the chart).

Euro
The long term trend remains positive for the Euro and the short term trend positive for the $.
We are now very close to support around 1.33.
This support must hold in order to expect a resumption of the uptrend.

Technical scoring Stoxx sectors

This is a technical scoring based on the 20 day (short), 50 day (mid), 100 day (long) and 200 day (very long) moving averages.From zero to ten points, scoring is green when improving red when deteriorating and blue when unchanged.

Bond markets - temporary blip or more turmoil?

The first chart is a monthly chart the bund future (in price) since the beginning of the 90's.
Technicaly speaking we had a sell signal in June 05 (double 13 arrow on chart).
This signal was later confirmed by a breakdown of a very important up-trendline in the beginning of this year.
This a very bearish chart and as you can see there is still downside potential as the target was not yet reached.

If we zoom and take a look at the daily chart we can observe that the recent fall was very steep and that we are now approaching the target of the the bearish descending triangle.
Thus, on a short term basis bonds are oversold and may be due for a bounce in the coming days (or weeks) but on a long term basis the change in trend is likely
to continue and that is why I don't change my target of 4.85%(10 YR BUND YIELD) for the coming months.

Equities
While I remain optimistic on equities, I have been faced with increased investor concern that the market is ripe for a correction. Despite the long-term uptrend, a short-term setback cannot be ruled out.
Please note as highlighted last week, how well TD Combo and TD Sequential indicators identified the recent sell signals on the DJ Euro Stoxx 50.(arrows on chart)
I think that a fall to the lower band of the rising channel is a strong possibility in the coming days or weeks.

Only 12% of the members of the Stoxx 600 are in a short-term uptrend (32% mid-term and 71% long-term.

On the positive side we have sentiment readings continuing to indicate more fear than greed among investors.
On the negative side we have some emerging markets (Russia, China) and real estate already in downtrend.
Pressure on the inter-market side also continues to build; the negative trends in bond markets are starting hurting equities and oil prices are breaking above important resistances.
So I address cautious investors’ concerns by looking for ways to protect portfolios from the riskiest areas without giving up exposure to equities and sacrificing potential upside.
That is why the Japanese market seems interesting today as the Nikkey recently broken up above 17500.Moreover the Yen in Euro has an inverse correlation to equity markets.

Bonds
Breaking above my first target of 4.5% (first time since end 2002!)
The second upside target iss 4.85% but at current levels investors could be interested in buying some bonds and selling some equities.
The US 10 year bond yield also rise above the psychological level of 5%.
Our technical target for the coming months is close to the 5.4% level.

Brent
No change, still bullish above 70$.The Brent could soon challenge the 75$ resistance zone(rectangle on the chart).

Euro
The trend remains positive for the Euro but a deeper pull-back towards the major support line is still my scenario. This support must hold in order to expect a resumption of the uptrend.
The first minor support is 1.33 (red dot line).

Technical dilemma

This histogram below (% bullish for members of the Stoxx 600) shows that the overall trend remains positive for equities.(68% short term bullish, 71% mid term bullish and 88% long term bullish)

click on the chart to enlarge

But recently some warning signals appear from a market timing technique, called TD Combo & TD Sequential used mainly by contrarian and aggressive traders.
Those indicators recently gave low risk sell indications on several indices, including on the Euro STOXX 50 and the S&P 500.

On the chart of the Dj Euro Stoxx 50 you can see arrows when the TD Combo indicator is flashing sell signals.
The last signals were pretty accurate but the negative point is that this method does not give any target.

The German government bonds yield is approaching the 4.5% first (weekly chart) target and strong resistance zone but I think that in the mid-term yields will move higher because the long term downtrend has been broken on the monthly chart and because we have a big bullish ascending triangle pattern on the daily chart.

So for conclusions I can say that equities are still bullish but overbought and bonds are still bearish but oversold.

OVERBOUGHT&OVERSOLD DJ EURO STOXX 50

Strong oversold (contrarian play)

Overbought

BUY&SELL DJ EURO STOXX 50

All trending indicators on buy

click on the table to enlarge

All trending indicators on sell

Technical Weekly 25052007

Equities
Last week I said that the market was overbought but that the trend was still good.
Now I think that the risk of a correction has risen.
Arrows (TD sequential and combo indicators) on the chart of the DJ Euro Stoxx 50 are signaling that the market is risky and that a bearish reversal may happen soon. We see the same story when we look at other indices.The chart of the MSCI World since the beginning of the year for instance is also showing “sell arrows”.

Others problems are: China is turning parabolic, bonds are falling, some lagging sectors or stocks are now outperforming (telecom) and recent advance was driven by a limited number of stocks.
So for conclusion, we can say that equity markets are at risk and quite mature but keep in mind that (as we said last week) the trend is still ok and buyers are still buying the dips when a correction occurs.

Bonds
On the weekly chart, the German bond yield is approaching the first target at 4.5% where some profit taking may happen.
But momentum is still rising and the yield has recently broken above an ascending triangle bullish pattern.

The US 10 year bond yield has also continue to rise over the last weeks and may soon challenge the psychological level of 5%.

Brent
On the last weekly I said that if the Brent was able to break above the 70$ level, this could open the door towards the 78$, which is the top of the trend channel.

Euro
No change. The Euro is still in the process of correcting its long term rise, which means that a deeper pull-back towards the major support line (red line on the chart) is a strong probability.
The first minor support is 1.33 (red dot line).
The long term trend is still up for the Euro.

TELECOM

There is a lot of interest for telcos stocks.On the chart below, you can see that the DJ Stoxx Telecom index rises above a symmetrical triangle on strong volumes.

There is 8-10% upside potential left for the coming weeks.

OIL

The Brent validates a bullish signal today.
This confirm that oil is now back in the uptrend channel.
The target is the top of the channel around 78-80$

CHINA

Shanghai composite is very close to long term major resistance.

Morevover the TD Combo indicator is now flashing a sell signal.(13 number on the chart)

Stocks with best upside potential

While some technical indicators are warning of a possible correction, the global equity market has continued to move higher aided by an avalanche of liquid public savings moving into stocks.
So in this condition it is very important to find stocks with favorable risk reward ratio.
In the scan below ( only members of the Stoxx 600) using updata we are identifying 3 key ingredients:
1 – Upside Targets from Buying Thrust where the Target is at least 3 times further from the price than the stop.
2 – That the stock is in an uptrend so that we are taking signals with trend
3 – That the target is at least 10% away
Here are the big names : ADIDAS AKZO DIOR ENEL RECKITT REED SAFRAN SCHNEIDER SOLARWORLD PEUGEOT
By the way my 10 stocks equity portfolio(only big cap) is up +15.09% since the beginning of the year.
The current names are :CMB IBA URANIUM PARTICIPATION EDF ENERGIES NOUVELLES NEXANS RHODIA TECHNIP VALLOUREC ABENGOA and a equity fund on the AUSTRALIAN market.
I'm watching closely SOLARWORLD and some telcos stocks for a future switch in the porfolio.

NOKIA

The long term chart of NOKIA looks pretty good to me.
The flat base pattern is one of my favorite long term pattern and usually this move signals a profond change in trend.
Price moves horizontally for months, making peaks and valleys as price moves forward, but hitting a generally flat top, flat bottom or both.
Once price closes above this top, it has pierced overhead resistance and is free to move up.
That is exactely what is happening for NOKIA now.

Technical Weekly 21052007

Equities
65% of the members of the DJ Euro Stoxx50 are trading above the 20 day moving average, 76% above the 50, 77% above the 100 and 90% above the 200.
This means that the index remains in a clear uptrend.
On the other way, indicators (see table below) are still giving a mixed picture and the market is entering a flat seasonal period between May and October.

click on the table to enlarge

Last week I thought that the index was validating a bearish breakdown, but buyers are still buying the dips quite agressively and the as you can see on the chart the index was able to break above the 4440 resistance zone.
You can also see that the RSI is close to be overbought again, but for now
I will respect and continue to ride the trend.
I stay with an overweight equity exposure but will be vigilant in the coming weeks. If the market turns parabolic, I will not hesitate to sell and take some profits.

Bonds
A simple line chart of the generic bund future with two moving averages (50 in green and 200 in yellow) shows that bonds are now in a bear market.
Last week I said that the German bond yield was forming a bullish flag continuation pattern.
So, I keep my targets of 4.5% and may be 4.85% for the coming weeks/months.

Brent
The Brent is now facing resistance at the 70$ level.
The stochastics indicator is still rising but is now overbought.
A break above this level would open the door towards the 78$, which is the top of the trend channel.
Strong support is located around the 60$ level.

Euro
The rate is now trading below the 1.35 level, which means that a deeper pull-back towards the major support line (red line on the chart) is a strong probability.
The first minor support is 1.33 (red dot line).
The long term trend is still up for the Euro.

Technical Weekly 11052007

Equities

Bad economic figures and renewed concerned about inflation after Fed comments triggered significant downside acceleration below 4400 on the DJ Euro Stoxx 50.
This technical breakdown is bearish in the short-term as it confirms the sell signals validated by most daily technical indicators.
On the chart, you can see that there is a short-term risk is of seeing a more significant correction towards the 4170 level (4% downside risk) and may be towards the lower trend-line of the uptrend channel .(7% downside risk)
For now, I expect just a pullback rather than the start of a major trend reversal.

Bonds
No change, the German bond yield is still forming a bullish flag, which means that we keep our targets of 4.5% and may be 4.85% for the coming weeks/months.
On a short term basis the trend is neutral.

Brent
Oil prices have reversed the near term uptrend and are now caught in a short-term downtrend channel.
Strong support is located around the 60$.

Euro
The correction is still underway and the rate is testing the 1.35 level.
A break below this level could provoke a deeper pull-back towards the major
support line (red line on the chart).
The long term trend is still up for the Euro.

AAII:BULL-BEAR

Individual investors in the US are bearish and they do not believe that the recent rally is "for real".

The level of Bull-bear (in yellow) is approaching the level we have seen last year in July.

This is a short- term bullish sign for the US markets.