Global Equity Monitor: Techno-Fundamental Research & Analysis

By Joel Kruger, Technical Strategist

• US equities looking to break back below 20-Day SMA
• UK equities holding up for now but at risk for corrective declines
• German equities on verge of first close below 10-day SMA in 2012
• Japanese equities break above 200-Day SMA but we remain skeptical
• Australian equities looking to carve medium-term lower top

US30 (Dow)

Technical : The market remains very well bid but is starting to show some signs of exhaustion after rolling over in the previous week. The 20-Day SMA is key here and while the price holds above this shorter term moving average, the up-trend will remain intact. However, a break and close below the 20-Day SMA will suggest that the market is ready for a more significant corrective pullback which would further accelerate on a drop back below the previous higher low from January 30 at 12,528.

Fundamental : Fed Williams has been making headlines saying that the Fed has its work cut out for it in a “clear, non conflicting task” of economic support during a period of l ow inflation and high unemployment . This comes after the Fed recently stated it intends to maintain ultra-accommodative conditions until 2014. On Wall Street, a number of the nation’s most influential banks have stepped up lobbying efforts against the controversial Volcker Rule (a ban on proprietary trading set to take effect in five months). The banks say the proposed rule wi ll increase risk, raise costs for investors, hurt U.S. competitiveness , and be vulnerable to legal challenge s.

UK100 (FTSE)

Technical : While the trend in this market remains bullish for the time being, we are starting to see signs of a potential bearish reversal. A closer look at the daily chart shows the trigger of a double top with the break below the neckline by 5,848, opening a measured move objective down by 5780 over the coming sessions. A close back below the 20-Day SMA will be required to accelerate further and expose more significant support by the January 30 previous higher low at 5,649. Back above 5,950 negates and gives reason for pause.

Fundamental : Although the UK managed to avoid a full-on downgrade, UK markets will likely be affected by the downgrade of a number of European sovereigns including Italy and Spain. Moreover, Moody’s placement of the UK on AAA negative watch is likely to weigh on market sentiment over the coming sessions. Meanwhile, UK PM Cameron is set to meet with insurance company brass today to figure out premium reduction strategies.

GER30 (DAX)

Technical : This market has been very well bid since late 2011 and continues to remain supported on dips towards the 10-day SMA. However technical studies are starting to look a little stretched and we would warn of the possibility for a bearish reversal over the coming sessions. We have not yet seen a daily close below the 10-Day SMA in 2012, and a close below this short-term SMA will likely be the trigger for the anticipated pullback.

Fundamental : Moody’s has kept Germany in the clear; however, the Italy, Spain and Portugal downgrades are likely to weigh on the Euro and correlated markets. Greek developments (or the lack thereof) are also expected to weigh on sentiment. Neighboring Austria was placed on downgrade watch overnight, and ECB’s Nowotny has been on the wires this today citing the Austrian budget consolidation plan as an important part of maintaining market confidence .

JPN225 (Nikkei)

Technical : Bearish price action from the previous week looked to have been warning of an exhausted market and potential short-term pullback, but the market remains very well bid and is now looking to establish above the longer-term 200-Day SMA. Still, with daily studies looking stretched, we do not see the market being able to establish above the 200-Day SMA before a more sizeable corrective pullback and will be on the lookout for a near-term topside failure. However, we recommend only looking to fight the uptrend on a break and close back under the 10-Day SMA.

Fundamental : Japanese markets are expected to outperform after the Bank of Japan last night published its intention to increase quantitative easing measures by 10 trillion Yen. The step is meant to stimulate lagging growth and inject liquidity into the market.

AUD200 (ASX)

Technical : While all of the other major global equity markets have done a good job of holding above their 10/20-day SMAs, this market has already broken down below these moving averages to warn of a more significant bearish shift in the structure. From here we look for the formation of a medium-term lower top somewhere around the 200-Day SMA just over 4,300 ahead of a fresh downside extension back towards multi-day support by 4,000 over the coming weeks. Ultimately, only a sustained break back above the 200-Day SMA would negate outlook and give reason for pause.

Fundamental : A number of positive data pieces could influence markets, with the NAB business conditions survey for January showing improved business confidence on the month. Moreover, wheat exports are expected to climb this year as favorable weather conditions caused the largest wheat harvest in history this year, according to the Australian government. However, broader risk sentiment is under pressure which could offset any positive local developments.

--- Written by Joel Kruger, Technical Currency Strategist

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