As mentioned in Arab News a few weeks ago, we expected a breakout of major equity indices based on good fundamental macro economic figures. Both have not disappointed! Nearly all equity indices (except for the S&P 500 and the MSCI World) showed technical breakouts with Europe taking for once the leading position. The classical pullback we have seen recently should not change our view of a short-term uptrend. However, the newest correction is worrying us (and this in spite of favorable macroeconomic figures), when significant support levels will be broken to the downside.
Some technical comments about the US market:
• We have seen for NASDAQ and Dow Jones (with exception of S&P 500 and MSCI World) important breakouts.
• US equity indices breakouts for once acting as followers.
• A short pullback, which often happens, does not change our view for a bullish scenario in the short-term.
• BUT: NASDAQ and Dow are becoming overbought.
• AND: The pullback should not significantly over pass critical support levels (NASDAQ:1745, Dow: 9355), otherwise a bearish scenario can be expected.
European market: all major indices showed breakouts with a pullback. The short-term uptrend is still intact. Japan: Nikkei 225 reached a topish level. An overbought situation and weakening momentum suggest a consolidation phase in the short-term, before reaching new highs.
Conclusion: Short-term view remains positive for major equity indices. Therefore take advantage of the short pull back before engaging in new equity investments.
US 10-year Treasury: The heavy oversold situation we mentioned last month led to a sideways movement of bond prices as well as in yield terms. After a rise in rates, we have a more stable pattern now. The 10-year treasury is fluctuating around 4.5%. We can easily detect a triangle formation, a trend following indicator. Once the important resistance level will be broken, we expect higher bond yield and therefore lower bond prices. EUR Bond futures give the same technical picture.
Conclusion: We still persist in a sideways movement as soon as the resistance level of the 10-year treasury of 4.60 and for EUR Bund future of 4.22 will be broken to the upside. Once it will happen we expect a higher trend in rates but only gradually.
As for gold, the primary trend points upward. Within this positive trend a triangle formation dominates the current gold price development. Now it seems that we will soon scratch the upper trend line. A break of this upper trend line would mean, that gold will climb to new highs (next important resistance level is at 374).
As gold shows a low negative correlation with the US dollar; the probable US dollar weakening should result in god rising again. A breakout of the triangle formation at 363 would also send a buying signal.
With reference to the Swiss Franc vis-à-vis US dollar, we have seen a breakout of the upper trend line, which led to a dramatic strengthening of the US dollar against CHF. Is this already over? Although we have already an overbought situation in the USD, we expect further up-moves as momentum is not showing a weakness. Next resistance is at 1.44. A correction at this point is rather possible.
- Arab News Business 1 September 2003
