Email of the day (1)
Comment of the Day

September 07 2011

Commentary by Eoin Treacy

Email of the day (1)

on potential bottoming activity:
"Question, Are we entering a bear market similar to 2008 or are we having a period of consolidation similar to that of 2010?

"On reviewing global equity, bond yield, commodity & currencies charts

"I wonder if we have seen over the last month signs of

"1) Trend ending volume spikes on daily charts, clearly seen on many global equities in the 2nd week of August;

"2) Major bases being formed, again on daily equity charts, with bases similar to 1987, i.e. since the lows we have seen 3 higher lows and so far 2 higher highs;

"3) Technically very over sold charts when viewed by the stochastic on the weekly charts

"4) On the world index, it appears that we are completing the consolidation phase following the index`s 2 leg recovery since its low in 2009;

"5) Finally on my own market here in Japan, are we seeing a 6 month double bottom being built into the Topix & Nikkei, and a 1987 type base building in the Topix 2nd section? I ask this, as I wonder if Japan will now be emboldened to do more to weaken the Yen following the success of Switzerland in removing the Swiss Franc from its Safe Haven category.

Attached charts:
"A) S&P Daily, showing the potential of a volume spike followed by possible higher lows!

"B) Brazil Daily and Korea Daily, both showing similar but more dynamic patterns than the S & P!

"C) Indonesia Daily, could the likes of Indonesia, Thailand and 1 or 2 others who have undergone such shallow consolidation be the 1st to renew their highs?

"D) US REITS Daily, typical of so many US sectors, base building?

"E) Topix Daily, following the volume spike in March, could the index be building a 6 month base?

"F) Yen/$ Daily, like Topix, base building?

"G) 30 Year German Yields, appears to be trying to build a 1 year base, plus like US, UK, Aussie, and a few other global bond markets looks technically very oversold.

"H) CRB Daily, Consolidating nicely, possibly indicating global economic growth is not about to collapse. Interestingly the Oil charts are following the CRB.

"I) $ Index Weekly, Trying to build a short term base?

"J) World Equity Index Weekly, epitomises the ?, are we in a bear like 2008 or in consolidation like 2010? My guess is the later, with consolidation taking place following the completion of the 2nd rising leg since the 2009 low!

"K) Nasdaq & S&P Weekly, both very over sold and very much in line with the World Index, but the Nasdaq is more dynamic!

"L) US 10 Year Weekly, an example of how over sold bond yields are, or the inverse, how over bought, so called Safe Haven bond investments are.....

"M) Finally if we needed it, re-confirmation of Global capitalism's seasonality, The S&P Seasonal Chart!"

Eoin Treacy's view Thank you for this detailed email and a question sure to be of interest to just about every investor. This reaction has been larger than that posted in 2010 and the majority of indices have short-term oversold readings. The situation could be resolved in a favourable manner similar to the action seen following the 2010 pullback. I would regard that as a best case scenario and even then markets ranged for six months before breaking upwards. I do not think we are in for a re-run of 2008 which is by far the worst case scenario.

The higher reaction lows since early August you point out are encouraging from a very short-term perspective. At a minimum they will need to be taken out to begin to confirm the more bearish hypotheses.

If markets do range for another few months and maintain a short-term upward bias then the oversold condition relative to their respective 200-day MAs will unwind and a sustained move above them will require less of a percentage move. Such has been the extent of technical damage that time will be required to allow investor confidence to be rebuilt.

Yes I believe it is highly likely that leading ASEAN indices will be among the first to break upwards.

In last night's audio David concurred with your view that Switzerland's more aggressive action to weaken the Franc may encourage Japan to do the same.

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