Technical scoring and buy&sell signals

Technical scoring from o to 10 points for the 18 Stoxx sectors+Real Estate.
Number in green when the scoring improving, red when deteriorating and scoring in bleu when unchanged.
The 2 last tables show some technicaly good and bad stocks.

"click on the table to enlarge"'

Ranking models

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The country/zones ranking model continues to deliver the same message : overweight emerging markets!

The Stoxx sectors model is bullish for Chemicals, Utilities, Telcos, Food&beverages and bearish for Real Estate, Travel&Leisure, Retail and banks

Best wishes for 2008!

End year rally?

On the hourly chart (DJ Euro Stoxx 50) below, you can see that a end year rally is still possible.
The target is the upper part of the rising channel.(+/- 4% higher).
But for now volume is still falling.(OBV indicator)

Baltic dry et bourses chinoises

L'indice composite Baltic Dry Index (courbe jaune), moyenne des prix pratiqués sur 24 routes mondiales de transport en vrac de matières sèches (minerais, charbon, métaux, céréales..) a récemment atteint un plus haut historique et techniquement parlant semble prendre une tournure parabolique.
Cet indice est fortement corrélé avec la performance de la bourse chinoise.(CSI 300-courbe jaune)

Concrètement en 2008 il y aura lieu de surveiller de près les indices boursiers chinois car il y a un risque de retournement après les jeux olympiques.

Buy&Sell DJ Euro Stoxx 50

"click on the table to enlarge"

Wheat

Wheat prices rose 33.66% YTD and 71.88% YOY.After this amazing performance, you may think that this rally may end soon and that it is too late to buy.
This long term chart below gives another perspective and tells another story.

This is a very bullish chart!

Technical weekly 18122007

Equities

Based on a favorable seasonality, short term oversold condition, extreme pessimism and a friendly Fed, I turned short-term bullish for a year end rally. However the recent downside acceleration deteriorates the short-term technical outlook.

So, I need a long term model to convince us that the long term outlook is still good.
A model’s greatest value is that it provides an objective assessment of the consensus of the indicators.
Forecasting procedures can be used to place current developments in the context of long term probabilities if they are used in conjunction with an objective model that enable you to maintain flexibility in responding to changing market conditions.
This model isn’t a market timing tool, but it will give you a clear perspective on risk and reward.
If it indicates that the market outlook is risky, you should respond by maintaining a defensive investment approach.
When the model starts to indicate that the skies have cleared and that there is little risk on the investment horizon, you can again be confident in taking an aggressive approach.
To determine the quality of the trend, I use a weighted combinaison of 3 waves of trend, based on different time frames.(monthly, weekly and daily)
The stronger weight is given to the long term trend.
I also used a risk return approach; this tool tries to define the potentiel of a trend.
The higher the score, the higher the probabilities of higher prices in the future. The stronger weight is also given to the long term trend.The combination between the trend and the risk return model is the matrix.

As you can see, based on this technical model, the risk/return and the trend for the Stoxx 600 remain weak.

Bonds
Since May, the German 10 year bond yields are trading in a downside trading range. As the yields trades now close to resistance and are overbought, I foresaw lower yields for the coming days.

Brent(Oil)
No change, the Brent is still challenging the ascending support trend-line.

A break below this support could extend the correction towards 80 $ but the long term trend is still up.

Euro
Last week I said that a break below support would suggest a much larger correction.For the coming days/weeks a move towards the 1.422 level, which is upper part of the bullish long term channel, seems likely.

€/$

Bearish signal for the rate today.A move towards the 1.422 level, which is upper part of the bullish long term channel, seems likely.

EMU GROWTH/VALUE

Is it still the time to switch from value to growth?
The long term chart (since 99) below shows a ratio between Dexia EquityB EMU growth versus value.

Euribor-DJ Euro Stoxx 50

Euribor 1 M rises close to a 7 year high.

The last time the black line (stock market) crosses below the yellow one (money market) it was in September 2000

Seasonality

According to this chart, equity markets will remain bullish into December.

Technical Weekly 10122007

Equities
On a short term basis equity indices are still bullish but as you can see on this first chart of the DJ Stoxx 50, the index is now overbought and a test of the resistance is now developping.

The second chart shows the same index but with a DMI system. The DMI system is made up of three lines ; the green line which measures the buying pressure (+DMI), the red one which measures the selling pressure(-DMI) and the white line which is the ADX.
This indicator measures the difference between +DMI and –DMI and indicates the trend of the market.
For now the system is bullish.(green line above red line)

What is interesting is the level of the ADX, a level below 25 indicates that the market is caught in a trading range and a level above 25 indicates a trading market. The latest values of the ADX for major indices confirm that equity markets are now range bounded and that the “buy and hold” approach must be change into a “buy and sell” approach.
DJ EuroStox50 :ADX :18.43

SP 500 : ADX: 20.26

MSCI World : ADX :19.94
MSCI Emerging markets : ADX : 20.56

Bonds

The German 10 year bond yields are still trading around the 4% level.

The ADX indicator (16.07) indicates a sideways range between 4% and 4.25% for the coming days.

Brent(Oil)
The short-term correction continues and Brent is now challenging the 88 support zone.

A break below this support could extend the correction towards 80 $ but the long term trend is still up.

Euro

After the recent correction, the trend of the euro remains long term bullish.

As long as the euro remains above its channel support line (currently, this line lies around 1.46), the outlook would remain higher with the upper part of the channel 1.500 as first target.
A break below channel support would suggest a much larger correction.

€/$ Part2

Many thanks to Arthur Hill for this interesting comment concerning sentiment analysis on the greenback.
On the lighter side of analysis.... you can even thrown in a few magazine covers for good measure.
Der Spiegel, Knack and The Economist all featured the falling $ on their covers this week.
The Economist has featured the falling dollar before - so no big deal here.
However, we must be close to a bottom if Der Spiegel and Knack are featuring the falling greenback.
And don't forget about the rapper (Jay-Z) and the Brazilian supermodel, who have suddenly become currency experts by shunning the dollar.

€/$

On this long term chart of the EUR/USD you can see that the target of the ascending triangle was recently reached.
But was is amazing to me is the nice Fibonacci correlation between the waves.
For instance : W3 =1.618*W2 around 1.492 and W3=0.618*W1 around 1.5.
The 1.4967 top was right between these levels.(thank you Karel !)
Also Wave 2 retraces 38.2% of Wave.
Who says that the market is "a random walk"?

Short term buy

Today equity markets validate a short term trading buy.

US consumer confidence

US consumer confidence decreased today to 87.3.
This is worrying for the US equity markets because this indicator (black line) is strongly correlated with the SP 500 (yellow line).
Also note that the capacity util. Index (green line) is also strongly correlated to the SP 500.

Technical Weekly 27112007

Equities
As you can see on this weekly chart, the DJ Euro Stoxx 50 is testing its 2003 support level.
That level must hold to keep the 2003-uptrend alive!

A successful bounce from that level would be a strong signal and could take us higher for a end year rally.

A break below this level however officially ends the 2003-uptrend, taking the market into a sideways or a bear market trend.

The SP 500 is also testing crucial levels (August low on the daily chart).

A lot of stocks and sectors are now deeply oversold, (YTD :real estate - 34.47%, banks -19.74%, Insurance -16.4%...) which means a short term bottoming process should begin soon.

On the other way, risk is still quiet high and most indices could soon validate big double tops pattern.

Needless to say, a breakdown below those lines could trigger another bearish wave

Bonds

The German 10 year yields fall below 4% confirming the bullish technical outlook for bonds. As you can see on the chart, the first target of the bearish C wave is 3.776, the next one is the strong support zone around 3.7-3.65%.

Brent (Oil)
No change, the Brent has now reached all of my short term targets (the last one was 94$) and have started a short-term pullback.The long term uptrend still prevails.

Euro

No change, long term bullish but target reached and very overbought on all time frames.(montly chart)

Fly to quality?

The German 10 year yields fall below 4% confirming the bullish technical outlook for bonds.
As you can see on the chart, the first target of the bearish C wave is 3.776, the next one is the strong support zone around 3.7-3.65%.

Trading buy?

The AAII ratio (red line) decreased to the lowest level since May 2006 (high pessimism).

As the SP 500 rebounds on the support level, we should adopt a more positive posture for equities.