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!

Technical Leaders ETF

Please find here http://etfinvestmentoutlook.com/commentary.php?id=10430&s=Technical%20Leaders%20ETF some infos concerning ETF based on technical analysis.

Zinc-Nyrstar

Après avoir formé une large figure baissière en forme de tête et épaule sur les années 2005 et 2006, le prix du zinc a depuis quelques mois déja atteint l'objectif de cette figure.Depuis lors après une stabilisation sur une importante droite de tendance haussière, le cours semble fortement repartir à la hausse.

Le premier objectif de cours au cours des prochaines semaines se situe environ 12% plus haut.(flêche sur le graphique)

Le prix du zinc a un fort impact sur les résultats opérationnels de Nyrstar. Une hausse de 100 dollars la tonne se traduit dans les comptes par une plus value de 26 millions de dollars.

Le titre est techniquement bien orienté, un dépassement au-dessus des 16.75€ ouvrirait la voie vers les 20€.

Nyrstar publiera ses résultats annuels le 18 mars.

Consumer Confidence

US consumer confidence fell more than forecast in February to the lowest level in five years as the labor market cooled and the economy faltered.The chart below compares the SP500 in yellow and the Consumer Confidence index.

Technical Weekly 25012008

Equities
Most short term indicators are now at oversold levels and most intermediate term indicators we looked are also at oversold readings.
Market internals remain oversold but are improving.
So that the market is oversold enough to rally but for now there is no pattern suggesting a sustained rally.
Taking risks have few chances to be rewarded as long as a valid signal did not appear.A wait and see market is the norm after a very strong decline but, as long as the process of reflection did not come to a end (base forming or distribution pattern?), it is highly preferable to stay on the sidelines.
This week we take a look at emerging markets, the MSCI EM Latin America made a new high (for 2008) last week and is strongly outperforming the Stoxx 600 (black line)















The MSCI EM Asia remains weak and volatile and the MSCI EM Eastern Europe technically ranges between the two others and is outerperforming European stocks.

Bonds

On the short term, positive action is expected (higher yields) towards the upper end of the descending channel (around 4.1%) but as you see the mid-term trend is still down.

Commodities

Most commodities are showing parabolic upside accelerations.

Their momentum is incredibly strong and most of them have made significant technical bounces since last month but are trading now close to resistance zone.

Aluminium, copper, oil and agriculture are just reaching long term key resistances.

The chart below shows the DJ-AIG Agriculture total return index; any break through these areas would suggest that the advance may extend a lot further.

Euro

The exchange rate is still trying to break above the 1.5 resistance level.

A break above this level could open the door to the 1.55-1.56.

Solaria update Part2

The downside target is close to be reached!

According to Bloomberg, analysts are still bullish with an average target price @ 22.35€.(12 month consensus)

It seems that none of them knows the statistics about double tops.

Here are the numbers :
percentage meeting price target :73%(one of the highest)

break even failure rate : 11%

pullback rate :59%

Fibonacci time projection

Time cycle is often forgotten when analysing markets but it may be more important than price levels in the current environment.
So far, there is still a risk of seeing renewed weakness over the next few weeks, which would probably provide trading opportunities.
It remains difficult to assess the downside risk of such a move and especially whether the January lows will be broken or not.
According to the weekly chart below showing the SP500 and Fibonacci time projections an important low could occur during the end of April.

Technical weekly 18022008

Equities

Last week I said equity markets were likely to test new lows.

As you can see on the daily chart of the DJ Euro Stoxx 50, the index seems to draw what looked like a flag pattern. This pattern is a bearish one, so that the odds favor a break down and a retest move on the January lows.

A successful re-test could be the basis for at least a stronger rally attempt.

With developing a second down-leg and re-testing the January trading lows, we could expect a double bottom speculation coming into the markets near-term.

I'm watching out for a key reversal confirmation on the support and for a confirmation of at least a double bottom pattern to start buying tactically.

The next chart, a weekly-based chart of the MSCI World Index, continues to confirm that we are in a bear market. There has been a moving average downside crossover (20 weeks below 40 weeks), and the moving averages and Macd continue to move downward.

Bonds

This week, I compare the prices of 3 German Govt bonds.

They represent different durations in the yield curve. (30 years in red, 10 years in yellow and 1 year in black)

The chart shows that the longer duration bonds did better than the shorter-term ones. That situation, however, may be changing.

Recently, longer duration bond have fallen faster than shorter-duration funds.
That could be a reaction to new fears of inflation and that is why we decide to buy inflation linked bonds for our clients.

These are bonds that have some protection against inflation built into their pricing. That would seem to make them a good alternative in the current environment of falling yields and rising inflation pressures (record high commodities).

Brent(Oil)

No change , the Brent remains caught in a trading range (broadening pattern) between 87 and 98$.The long term trend is still up.

Euro

No change, the exchange rate was not able to break above the 1.5 resistance level. The short term correction may continue to the 1.43 support level.

Solaria update

Solaria shares drop 20%!

A rumour in the market says that Co books 2008 sales in 2007, and will account them again in 2008.

As a technical analyst, I don't care about rumours but I was worriyng about the "big bearish double top".

Charts don't lie but people (or companies) sometimes do!