Archive for category: DEVELOPED MARKET EQUITIES

In August I analyzed the U.S. unemployment rate from a technical perspective. Technical analysts (Chartists), look at pure price information and analyze directional movement. In doing so, they use different technical indicators. Here I’m using 1&2 year moving averages to identify cross-overs. Unemployment in U.S. has peaked around 10% in October 2009 and since then it has fallen towards 8.6%. Moving average cross-over in the beginning of 2011 signaled improving job market for U.S. If we analyze past data we can see that every cross-over was followed by better employment figures for at least one year after the technical signal. Given that the cross-over signal was generated in the beginning of 2011 we can expect better figures in 2012.

When all the commodities experience sharp sell-off, this is reflected on the major commodity indices. One of the widely used commodity index is the Goldman Sachs Commodity Index. The weight of energy products in the index is higher when compared with the Reuters/Jefferies CRB Index. As a result changes in Crude Oil price has a larger impact on the technical outlook for the GSCI. Yes, we have seen agricultural commodities and industrial metals weakening in the past few months but Light Crude Oil’s sharp correction in the past few days brought GSCI clearly below its 200 day moving average. Lower lows and lower highs define the medium-term downtrend and before Goldman Sachs Commodity Index moves back above 650-670 area stay bearish on commodities.

MACD divergences are great tools to anticipate trend reversals. They are the first warning signal to show the weakness in momentum. When combined with technical support/resistance levels their message could be extremely valuable. Dow Jones Industrial Average has been ranging between 12,800 and 10,600 levels for the past 8 months. MACD warned us before every major market reversal. In July, in October and now… Dow Jones Industrial is now testing a strong resistance at 12,300 levels with a negative divergence. We can conclude that the index will not be able to break above the strong resistance with the current momentum. A sell signal on MACD could pull the Dow Jones Industrial Average lower towards its 200 day moving average at 11,700 levels. Equities are having difficulty to move higher. This is bearish for equities…

A long-term consolidation… A classical technical chart pattern (symmetrical triangle) and a strong technical support level… This chart would be a perfect fit for a text-book example. We will be looking for this commodity to find support at 270 levels. Wide trading range has contracted to as low as 100 points and now we are at the lower boundary. RSI is close to 30 levels (oversold) and the weekly chart is showing strong support. Soy meal should be on our watch list in the agricultural commodities.

While European countries are trying to come up with a good plan to save the euro zone, 6 central banks around the world  the Federal Reserve, European Central Bank (ECB), and the central banks of Canada, U.K., Switzerland, and  Japan decided to provide “temporary U.S. dollar liquidity swap arrangements.” Those  dollar swap lines and programs are authorized through 1 Feb. 2013. This definitely helps the equity markets and could be seen as a “monetary easing”. While collective central bank move can have both positive and negative implications, the impact on the equities hasn’t been big enough to change the technical outlook. MSCI EM index is possibly completing a sideways consolidation below its 200-day moving average. Once completed, a breakout should take place. Given that this consolidation is forming after a downtrend, I would expect a resolution on the downside which should eventually break below 850 levels. Though we need to see a confirmation. Intermediate/long-term bearish outlook remains intact.