Market outlook

The upward trend feels threatened. Supports will decide in the coming days if it will be eventually violated.

Amsterdam´s AEX could play a key role to assess the European economies´strength

Stocks markets will have to face a difficult week, mainly due to the fact that the uncertainty continues to be the most relevant feature in the short-term scenario. Weakest European markets have spread fears on investors worldwide. As a result, nor stakeholders neither bondholders have been exempt from concerns about their investments yields. So far, gold has been the refuge for frightened people, keen to flee from risky assets. However, even metals seem to have brought about doubts on their rally sustainability.

Previous weeks, attention has focused on Mediterranean countries such as Greece, Portugal and Spain and their capability to meet their financial commitments. Their 10-year bonds incremental yields reveal their overall deterioration, which, especially in the case of the Hellenic country, could finish in default. Despite the endeavours of International Institutions, such as the International Monetary Fund and the European Central Bank, which have repeatedly stated that they strongly backed those European countries that are in trouble, the euro has consistently plunged against the dollar and other currencies. This fact demonstrates that the market shows little or none conviction about the Financial regulators ´speech.

Mediterranean countries have seen their stocks markets plummeting in the last months. The Spain´s Ibex have decreased a 26% since the first week of 2010 and the Greek and Portuguese Indexes have equally undergone severe corrections. By contrast, the Dow Jones and the Germany´s Dax have become the strongholds where money has tried to look for refuge.

Market direction could be a goal complicate to forecast in the short term. Perhaps the behaviour of the Stocks Markets of some Northern European countries could contribute to clarify a short and middle-term strategy. The Amsterdam´s AEX, for instance, has experienced so far a similar movement to the German Index. Nevertheless, last week, prices broke down its 200-session moving average, which has worsened significantly its technical situation, because this index had already a negative element: its primary rising trendline had been lost at the beginning of May.

Therefore, next week the Dutch index will have to prove its ability to be free from Southern European economies ´contagion. There are two key elements which should behave as the crucial tests to determine their future for the coming quarters: the supports of 310 and 300 points. If they eventually are broken, the bearish pressure could lead the AEX to a significant correction. Otherwise, the likelihood to recover its upward structure would remain intact.

There is a single bullish technical element that could suffice to make the AEX experience an increase in the short-term: the positive divergence that the RSI is forming. However, it will have to struggle with too many negative aspects which rule over the market´s sentiment.

The technical recommendation for the AEX is to open short positions if prices break the level of  295 points. It´s advisable to set a stop loss in the level of 335 points.

European Markets: Does History repeat itself?

The technical movement that Stock markets are carrying out is very similar to the recovery cycle that they developed in 2004. At least this conclusion could be made after the analysis of the French Index, Cac 40.

The current chart compares two different moments, 2004 and 2010, which may be considered as analogous from a technical perspective.

In 2004 the market had soared a stunning 57% since March 2003. Subsequently, the Parisian Index got stuck for the whole year in a lateral range, which in the chart appears as a 12%-height rectangle. Prices hit the support of this pattern (the zone of 3.500 points) three times. Finally, it demonstrated that it was strong enough to ensure the continuity of its rising long-term structure.

Currently, the situation is very alike. Despite the collapse of the European Stocks markets in May 2010, the balance remains, as it shows the new rectangle formed by the support of 3.500 and the resistance of 4.000 points. The first level is playing a key role in the short term because it concentrates the purchasing interest. This area has been reached for three times in the last seven months as it happened in 2004.

Despite the general weakness of the Financial Markets, if History repeats itself, the main French Index could withstand the bearish pressure. In that case, the index could deploy the same movement that in 2005 when it eventually broke the top of the rectangle, which brought about a new upward impulse that led the CAC very close to an all-time high.

Consequently, the support of 3.500 points is a key level to watch over, because the likelihood of a similar move to the one that happened in 2004 will depend on its resilience. 

The recommendation is to hold. Stop loss in 3.300 points.

The Nasdaq Composite will have to struggle to keep a crucial support

Last Friday, Wall Street´s main indexes tumbled during the session´s last hour. This fact involves a higher level of technical deterioration.

So Far, North American Stocks Markets have avoided the contagion from other economies, mainly European countries, where a wide range of Indexes have collapsed, especially after the increasing financial problems that Greece has revealed in the last weeks. The credit rating downgrades that some Mediterranean countries such as Portugal and Spain received from Standard &Poor's aggravated their poor technical situation.

The Nasdaq Composite is going to play a key role this week. The technological Index has soared a 100% since March 2010. It currently keeps its primary rising trendline. By contrast, the secondary upward tendency could be threatened if eventually the support of 2.450 points is broken down.

The potential head-and-shoulders pattern that prices are starting to develop is a second negative element. At the moment, its technical situation is not dangerous enough, but if the neck line (wich coincides with the level of 2.450 points) gets lost, this movement could jeopardize its short-term rising structure.

The recommendation is to sell if prices break the level of 2.430 points. Stop loss in 2.535 points.

Dow and Dax shine among Securities markets, but they reach their goals

The Dow Jones and the Dax have demonstrated so far their resilience among the most representative worldwide Stocks Markets. As their charts show, they have been able to maintain their upward tendencies during the past two months, despite the general weakness which many Securities Indexes have been immersed in.

Nevertheless, their technical situation has begun to deteriorate, which can led both of them to look for lower goals. However, the strategy remains unchanged as it should focus to watch over the first supports: 10.960 and 6.140 points respectively.

The recommendation for the German Index is to sell if prices finally break the support of 6.140 points. Stop loss in the level of 6.350 points.

As for the Dow Jones the recommendation is to sell if prices break the level of 10.940 points. Stop loss in 11.250 points.

Dow Jones and Dax: Markets correction consequences

Last Friday alleged fraud accusations against Goldman Sachs brought about a significant correction in the Stock Markets, whose technical consequences have differed if we compare both North American and European main securities Indexes.

For instance, the most representative German Index, the Dax, has experienced a short-term scenario change towards a more bearish situation. In fact, its accelerating line is beginning to undergo a bearish pressure increase. As a result, its rising structure can be seriously damaged. The significant decrease that European Stocks suffered last week was, on the one hand, the result from a evident overbought situation that technical indicators had begun to show and, on the other, an excuse that investors had been looking for during the last sessions to make a profit-taking movement.

So far, it´s unclear which the extend of the correction could be. It will depend on the 6.140 support resilience. If it eventually can´t withstand the selling pressure, the accelerating trend will be considered as definitely lost. In that case, the decrease goal would be its primary rising trend, which passes by the level of 5.900 - 5.750 points. By contrast, if it concentrates enough buying interest, its short-term rising structure could be re-built again.

The recommendation is to close the long strategy if prices finally break the support of 6.140 points. Stop loss in 6.300 points.

The Dow Jones has demonstrated so far a healthier situation that European indexes. In fact, the 14% decline that the aforementioned banking investment firm underwent on Friday didn´t interrupt the rising movement that the most popular North American Index has been carried out since the beginning of February.

However, the fall was so abrupt, that a more intense falling technical movement could be unleashed in the coming sessions. To assess the likelihood of such a significant fall is very important to watch over the level of 10.950 points (whose role is absolutely key)  and secondly, the support of 10.850 points (by far less significant, although it should theoretically be more resilient).

The recommendation is to open short positions if prices break the level of 10.800 points. Stop loss in 11.150 points.

Spain: Its main Stock market Index, Ibex 35, reflects a troublesome economy

The Spanish Stock Market has had one of the poorest performances amongst the European countries in 2010. So far, the Ibex 35, its most representative Index, has decreased about a 7%, as the German DAX or the French CAC 40 have increased a 5% and a 3% respectively. Its behaviour seems to be more sluggish if we compare with another European indexes, especially Nordic Economies, such as Finland, whose Index HEX has soared around a 13% during the first quarter of this year.

The collapse of some of the most significant “blue chips”, such as “Santander” or “BBVA”, that plumbed 37% and 30% between January the eleventh and February the twenty sixth, has partially explained the weak situation of the Spanish market. Apart from these multinational banks, Telefonica had fallen a 19% in the same period. We have take into account that this three securities account for a 50% of the Ibex 35.

Despite this apparently discouraging situation, a fair analysis should take into consideration the fact that these stocks had a staggering recovery last year. Santander, for instance, soared a 235% in the last three quarters of 2009. Therefore, its correction of 37% should not be dubbed as “worrying” from a long-term perspective.

Once the one-year scenario has been dissected, the main question is what investor can expect for the coming months. If we examine in detail its technical situation, there are relevant elements to look at. The key level of 11.200 points is going to play a crucial role in the short term. So far, it has prevented the Ibex from carrying out an upwards movement, like the European ones we have previously mentioned. If this area was broken up, the Ibex would still keep a potential recovery.

This chart shows a second important factor that can influence the result: the psychological zone of 10.000 points behaved as a bottom two times. The subsequent break-up of the 10.750-point level could have made an impartial spectator think that the Spanish market is trying to develop a double-bottom pattern and that the falling stage could be close to an end.

However, despite this appealing hypothesis for bullish strategies, the resistance of 11.200 points, which was a phenomenal five-month support, remains decisive. If finally it´s broken up, the way to the next resistance (12.250 points) will have been cleared. Otherwise, the Ibex will stay in a range-bound situation between 10.750 and 11.200 points.

The recommendation is to hold. Stop loss in 10.680 points.

e-mini Nasdaq 100: the selling goal is very close

The e-mini Nasdaq 100 has climbed more than a 14% since the past February the first, when it  strengthened its middle-term uptrend, which was born in March 2009. Prices developed a support in the zone of 1.730 points, which has been the beginning of the last rising impulse.

Currently, its technical position involves a call for prudence to those investors who trade in a short-term basis. This opinion is based on two technical obstacles that this index may have to face in the next sessions:

First, the resistance of 1.960 points represents a significant bearish stronghold. This level was the last decent opportunity for many investors to go out from the market in August 2008, just before the Stock Markets collapsed. As for the Nasdaq 100 it plumbed almost a 50% in barely a quarter.

Secondly, the raising channel top is very near. Therefore, the bearish positions should make some kind of additional pressure. Consequently, they could interrupt the current middle and short-term upwards movement.

The technical recommendation is to open bearish positions around the level of 1.950-1.970 points. It´s advisable to set a stop loss around the level of 2.020 points.

E-mini S&P 500 future contract: Rising structure remains

The e-mini S&P 500 future contract has kept an impeccable short-term rising tendency. The decline between January the fifteenth and February the tenth increased the likelihood to extend its eleven-month primary upwards movement, due to the fact that it was able to diminish its excessive overbought situation that most of technical indicators showed. Therefore, the correction from the level of 1.150 to 1.050 has played a key role, because it has boosted this new rising impulse.

To sum up, this index remains bullish from a middle and short-term perspective. Prices in the first scenario are guided by the parallel lines, which are the current limits to its movement. As for the short-run strategy, it should be planned taken into account that the rising trend, born five weeks ago, remains intact.

So far, the e-mini S&P 500 maintains its successive higher-low prices. The last supports shall be watched over, so that investors remain confident that the rising structure continue going ahead. This important zones are the level of 1.150 and 1.130 points.

The recommendation for this index is to keep long positions. Stop loss in 1.125 points.

DAX: It achieves the goal of its inverse head-and-shoulders pattern

In the video tutorial we published at the beginning of March,http://timelymarkets.blogspot.com/search/label/Video%20Tutorial we explained that the main German Index could develop an inverse head-and-shoulders pattern which should lead the Dax to the highest level that was reached on January the eleventh: 6.100 points. The rise measurement was done according to the basic principles of Technical Analysis: once the neckline is broken up, the upwards movement should coincide with the head height. The rising tendency which was born in March doesn´t seem to have finished. However, the presence of a resistance in that level of 6.100 points should be considered as a call for prudence.

The recommendation is to sell partially around the area of 6.050 - 6.100 points and to close totally long positions if it achieves the next goal, between the zone of 6.250 and 6.300 points.

Dow Jones: Long Term Perspective

The North American Indexes have been more resilient to the news which have had a negative effect in the developed countries' Stocks Markets. As we have analyzed in previous strategies, many European indexes have lost their primary rising trendlines. They are currently trying to structure their move in order to be able to recover former upwards moves.

By contrast, the Dow Jones has been strong enough to keep its move up, after a brief period of consolidation. The most well-known Stocks index could offset the bearish pressure, thanks to the 9.850-point support´s strength.

Consequently, the long-term structure remains upwards. The recommendation is to maintain a long strategy. Stop loss in 9.700 points should be established.

Nikkei: A long term perspective

The long term analysis of the most representative Japanese index brings an ample range of information on its technical situation. In fact, it shows the most common moves that prices can be developed and consequently, analyzed by means of Statistics.

The Nikkei carried out a lateral move for 20 months, since January 2004 to August 2005. The range wasn´t too wide, but the purchasing and the bear positions were well established, which facilitated a speculative strategy between 10.500 and 12.000 points. This scenario involves a trader´s more demanding attitude in order to make a profit.

The 12000-point breakout lead this index to the highest of 18.000 points. This scenario´s main feature is its rising trendline. The only coherent strategy is to maintain long positions. Therefore, trader´s only mission is to watch over a possible trendline break-down.

From July 2007 to the lowest level of March 2009 the Nikkei developed a clear downwards trend. Logically, the only possible strategy was a short position as a general rule. Nevertheless, we can realize that prices built a channel where rising movements were sometimes brought about. For example since March 2008 to July 2008, the Japanese index soared dramatically from 11.700 to 14.700 points, which means a 25% increase.

Finally, the question is if a new rising cycle has began in March 2009. So far, this is the most evident hypothesis, as succesive higher-lows appear. The last two supports have been 9.000 and 10.000 points. So the rising trendline must be watched over.

The long term recommendation, from a technical viewpoint, is to maintain long positions with a stop loss in 8.900 points.

Eurostoxx 50. Difficulties to develop a reversal pattern

The Eurostoxx 50 had appeared to be very weak during 2010, especially after the rising trendline breakout in January 15th. Since that moment, the most coherent strategy has been the bearish one. However, prices seem to have found out a reliable support in the short term: the level of 2.670 points. A reversal pattern of shoulder-head-shoulder is beginning to appear. The key points to ensure a successful long strategy is, on the one hand, to go through the neckline, and on the other hand, to do it with the technical indicators in a neutral position. Some fast indicators such as Williams and Stochastics are overbought. Therefore, it should be necessary to have a rest before trying more ambitious goals.

Technical recommendation is to take advantage of possible corrections to the level of 2.750 points, to add long positions. Stop loss in 2.650 points.

Hang Seng. Stochastic´s overbought conditions could lead to a decline in the short term

The technical situation of Hong Kong´s main index has significantly improved in the last week, especially after the 20.500 - point level break-up. However, there are some obstacles in the short term which could prevent it from continuing its upwards movement. Fist of all, the level of 21.000 points, that was a strong support in the last quarter of 2009, should become this time a difficult resistance to be pierced for the purchasing interests. Secondly, some indicators, such as the Stochastic, which are overbought, suggest that prices could have risen too fast and too steeply in the short term. Therefore, the market sentiment could turn a little bearish. In this case, the index could look for to lean in the short-term upwards trend, around the level of 20.400- 20.500 points. The recommendation is to add long positions in case of decline and to set a stop loss in 20.100.

Dax: To be attentive is a must. A pattern of shoulder-head-shoulder might be carried out

The main German index was up about 69% since March 2009 to December 2009. During this period it was able to keep an upwards tendency. As soon as prices touched that trend, quick upwards movements were brought about. This scenario indeed facilitated the proper strategy: according to Technical Analysis basic principles, a trader must be coherent with a trend direction. Therefore, long positions should have been kept for the last three quarters of 2009. However, by the beginning of the second fortnight of January 2010, the situation changed dramatically. That tendency, which had played a key role, was broken and therefore, it didn't make sense to maintain the same strategy.
It was difficult to evaluate the consequences of such a tendency break, especially because the volume was significantly higher than the monthly average. From that moment, perhaps the indicator which has taken the lead in the new scenario has been the 200-session moving average. This indicator has allowed the Dax to build the foundations of its recovery. In the short term, it´s developing an inverse shoulder-head-shoulder. The most important element is the neckline that the level of 5.735 represents. If prices pierce it with an important volume increase, the next goal would be the high levels of 2010, that´s 6.100, which implies a recovery of 6.30%.
From a Technical point of view, we recommend to open long position above 5.750 and a stop loss on 5.480.

El Eurostoxx 50 se estabiliza en un rango lateral entre 2.600 y 2.800

La media móvil de 200 sesiones ha jugado un papel decisivo en la interrupción de la corrección bajista de este año. En el corto plazo su movimiento se ha estabilizado entre los 2.600 y los 2.800 puntos, que pasan a convertirse en las dos zonas de referencia de este índice. La posibilidad de volver a dirigirse a los máximos de principios de 2010 pasa por la superación de la resistencia de los 2.800. Por el contrario, la perforación de los 2.600 añadiría potencial bajista a su situación técnica. La recomendación es mantener posiciones largas con stop loss en 2.550.

Análisis de la correlación positiva entre el dólar/euro y el Dax de Alemania

Si analizamos de manera conjunta por una parte, la evolución de la cotización del euro frente a la divisa norteamericana, y por otra, el comportamiento del Dax de Frankfurt, llegamos a la conclusión de que su correlación es positiva con una Beta cercana a 1, a excepción de algunas sesiones a finales de diciembre de 2009. Durante 2010 el desplome de la moneda única europea se ha vistado acompañada de un descenso muy significativo del indicador germano. La cuestión ahora sería si una recuperación del euro podría implicar consecuencias alcistas para el Dax. A tenor de lo sucedido en el pasado, existen indicios para pensar que así podría ser. Es necesario, en consecuencia, calibrar esas posibilidades de rebote al alza de aquél. En principio, el único argumento a favor de un rebote es la divergencia alcista del RSI, que podría apuntar a una ralentización de su ritmo de caída. A pesar de tratarse del único punto a favor, no es un argumento despreciable. La consecuencia podría ser una reacción al alza hasta niveles próximos a los 1,40 dólares por euro. Ello abriría la posibilidad de una reacción alcista al Dax hasta los máximos de principios de 2010. La primera prueba de fuego sería para el índice alemán la resistencia de los 5.750. La superación de este nivel favorecería la hipótesis apuntada anteriormente. En caso contrario, seguiría el escenario de debilidad técnica.

Nikkei: La resistencia de 10.450 puntos puede poner freno a las subidas

El índice japonés Nikkei consiguió llevar a cabo un rebote alcista desde la media móvil de 200 sesiones http://timelymarkets.blogspot.com/2010/02/el-nikkei-puede-rebotar-tras-haberse.html. Esa recuperación de aproximadamente un 5% puede ser objeto de una consolidación, al haber alcanzado el primer objetivo de los 10.450 puntos. No sería extraño que pudiera corregir en el corto plazo hasta niveles de 10.100 puntos, lo cual dejaría intacta esa directriz alcista de fondo.
La recomendación técnica es mantener con stop loss en 9.900 puntos.

Debemos vigilar la reciente estructura alcista del Dow Jones

La nueva tendencia alcista recién inaugurada por el índice norteamericano http://timelymarkets.blogspot.com/2010/02/la-ruptura-de-la-resistencia-de-10350.html no ha quedado dañada, a pesar de la corrección de la sesión del 23 de febrero. De momento, la sobrecompra ha empezado a provocar la caída del índice y permanece el potencial correctivo. El Dow Jones podría dirigirse a niveles cercanos a los 10.000 puntos, pero, a fecha de hoy, la conclusión más positiva es la permanencia de la directriz alcista. La recomendación es mantener con stop loss en 9.980 puntos.

El nivel psicológico de los 5.000 puntos del Footsie 100 impulsa una reacción alcista

La importante recuperación del principal índice londinense ha conseguido una mejora significativa en su situación técnica. El origen de la misma ha estado en la solidez defensiva demostrada por el nivel psicológico de los 5.000 puntos. Esa reacción alcista posterior ha conseguido poner fin a la directriz bajista que había dominado este índice durante gran parte de 2010. La verticalidad de la subida, sin embargo, ha dejado algún indicador técnico como el Stochastic demasiado sobrecomprado. En consecuencia no es descartable una cierta consolidación de las subidas durante esta semana con el objeto de disminuir esa sobrecompra acumulada.
La recomendación es aprovechar caídas para aumentar posiciones compradoras con un stop loss en 5.100 puntos.