Email of the day (1)
Comment of the Day

December 05 2011

Commentary by Eoin Treacy

Email of the day (1)

on weekly key reversals:
A perusal of 5-year weekly charts of my favorites turned up weekly reversals in French, Italian, Belgian, and Austrian 10 yr. yields. I also detected a reversal in the Indonesian stock market. Am I reading these correctly? If so, since I generally traffic in equity investments do I use this as a signal to broaden exposure to Indonesia? Thank you for yours and David's ongoing focus which serves to keep me anchored in rough seas (indeed).

Eoin Treacy's view Thank you for your kind words and this email which may be of interest to other subscribers. The Belgian and Austrian 10-year yields formed weekly key reversals because they hit new highs intraweek and closed below the lows of the previous week. France and Italy posted large downward dynamics but did not form key reversal because they either had not hit new highs or because they did not close below the low of the previous week. However, commonality, the psychological impact of the dynamics and follow through today all contributed to an improvement in sentiment.

Last week's action on the Jakarta Composite Index does satisfy the upside weekly key reversal criteria. However it needs to be contrasted with that posted at the August peak which was much larger, from a record high and delayed the medium-term uptrend for at least a few months. Last week's move was encouraging in that it lent additional support to the recovery hypothesis.

In addition, the S&P 500 and Dow Jones Industrials both posted large outside days last Monday and in a reflection of market volatility, the Nasdaq-100 posted an island reversal in late November.

This price action supports the view that short covering is underway at a minimum. Bargain hunters and momentum traders will also have been enticed in. The volatility of the last six months suggests that once the current rally has run its course an additional swift decline cannot be ruled out. However what remain, perhaps, the most important facts are that the November lows are above the October lows for the majority of markets outside of the worst hit Europeans. Leading consumer and technology oriented shares also continue to hit new highs. These are all positive developments and strengthen our conviction that a medium-term low has been reached.

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