Technical Weekly 04022008

Equities

With an oversold bounce over the last two weeks, the DJ Euro Stoxx 50 is approaching a resistance zone from broken support and the 50-day moving average.(yellow line)

Before going further, we should know that the overall trend remains down for two reasons.

First, the index broke down in January with a decisive move below its 2007 lows.

Second, the 50-day moving average is below the 200-day.

The next thing to expect is a reaction rally back toward the recently violated neckline support, which is now overhead resistance.

While the market's recent performance has been good for bulls, you can see on the chart below that strong overhead resistance in the form of the long-term rising trend line lies dead ahead.

The next chart shows the same index but on a monthly basis.

Note that the monthly stochastic lines have just given a sell signal and the monthly MACD histogram has been negative for two consecutive months.

This downside crossover is the first since the last bear market began in 2000.

Technically speaking, I think the current rally may continue in the near term but I also think renew weakness will follow with indices possibly retesting January lows.

One last observation, according to the Stock Trader's Almanac, the January Barometer predicts the year's course for the SP 500 with a .754 accuracy and every down January on the S&P since 1950, without exception, preceded a flat or bear market

Bonds

No change, yields are still caught in a downtrend channel.

For the coming months I can not exclude the possibility of a deeper correction towards the important support of 3.65%.

Brent(Oil)

Oil is trading above support and the double top pattern highlighted last week was not validated . The long term trend remains bullish.

Euro

The rate continues to trade below the important resistance of 1.5.

Watching the two last candlestick patterns, I do not expect significant move in the coming days.