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.