EUROPE
Frankfurt’s Infineon Comes Up Short
Here is Frankfurt’s one and only INFINEON TECH, who has recently started a new upwards trend. Upon first glance at the chart below, it is my gut reaction to say “good time to buy” because it has indeed hit the supporting upwards trend line and should be at an optimum price for a strong buy. But technical factors, and too many of them, are in the way.
For one, a very natural line can be drawn above the current trend. This and the line of the trend itself form a pattern we call an opening fan. These can become unstable as they run their course and for the short term, these 6 weeks are enough. The pattern is expected to break soon and it will probably be in the downwards direction because several technical factors are here to influence this.
For one, the Moving Average 5 has been crossed by the MA 21 and the MA 13 is on its way to do the same. Five days ago the Directional Movement DI+(blue) crossed the DI-(pink) going downwards, a clear sell signal. And the Price Oscillator shows a slope down to zero and heading into negative territory, this being another strong sell signal. Add to this failure to be supported at current levels, and the fact that the nearest support below is at 4.43, about 10% below current market price, and here you have a good case for a sell-short position on this darling equity.
This is the way the Chart looks:
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Is The FTSE 100 Index Headed Down?
The FTSE 100 is close to providing the major bear signal needed to prompt a sustained break below the 5000.00 level, which in turn would attract a fresh wave of bear pressure to 4365.00, but potentially 4160.00. The index of the U.K.’s blue-chip companies has been on the back foot ever since the collapse off the 2010 high at 5833.73 in mid-April. The age-old adage suggesting stock investors should sell in May and go away has been an accurate one this year, and a series of lower highs and lower lows has been evident since then. However, since the beginning of May, the lower lows have met an unusual and very strong negative divergence in the RSI, a possible foretell of a bullish break that is so unexpected by most Market Analysts and Technicians. For details, see the FTSE 100 daily chart for details.
This is the way the Chart looks:
This setback can be broken down into impulsive and subdividing downwards moving waves, where the May 7 reaction low at 5045.30 marks the first impulsive wave low, followed by the corrective rally to 5435.99. The subsequent impulsive move downwards then starts to subdivide after setting a lower low at 4898.49 on May 25, before correcting higher to 5262.50 last week.
Looking closely at that June 3 reaction high at 5262.50 reveals it to be a bull failure/bull trap high, and dominant bears are looking to force a break below this week’s low at 4984.66 to expose the 4898.49 reaction low. A break through this 4898.49 low would provide the strong sell signal, as a subdivided third wave decline is usually a very powerful destructive wave, initially exposing the 4647.00 area where an equality target and the 50% Fibonacci Retracement levels of the 3460.71/5833.73 rally coincide.
However, wave extensions larger than 1:1 are usually associated with this type of decline, exposing congested support between 4365.00 and 4392.82, and possibly the 4160.00 target, being a 1.618 extension target projected off the 5435.99 lower reaction high. Meeting this 4160.00 target would represent a decline of approximately 18% from current levels.
To question the intensity of the prospective bearish outlook, a break above the 5262.50 bull failure high is needed. However, to completely negate the bear threat would require a break above the 5435.99 high. As I mentioned above, the strength of the break possibility is heightened by the RSI divergence and other important technical factors. If one looks at the world picture, he sees bottoming and retesting supports all over. The turnaround of the World Markets may be coming and there is ample reason to believe in this.
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European Stock and Currency Summary
The Federal Reserve Bank chairman Ted Bernanke commented Tuesday that the U.S. recovery will remain intact. This continues to lend a prop to risk appetite as did talk that Thursday’s China export data will show a 50% increase. European equity exchanges traded positive throughout the session.
The risk currencies advanced, CDS rates came down and peripheral Euro Dollar zone bond rates came down somewhat. EUR/USD nudged 1.20 from a 1.1924 low, GBP/USD recovered from its ratings-worry sell off Tuesday adding one cent to 1.4534, despite a surprise widening in the visible trade balance to GBP7.2B. USD/JPY pivoted around 91.50. The main European indices are up around 0.4%, gold is down $3 at 1234oz after printing a lifetime high Tuesday and oil is up $1 at $73bbl.
Where the turnarounds are happening are all around strong support/resistance lines all historic in importance. The Dollar Index Futures hit a major resistance line yesterday at an in day high above 89 points and retreated. This seems to be the end of the monthly upwards trend that started when prices broke the long-term symmetric triangle upwards as I pointed in my previous article. The Futures Index will not, it seems to me, make its intended goal of 92.3 points, but this is true for most pattern breaks. It is hard to say for now what will be with the US Dollar rates around the world, but the upswing seems to be ended when looking at Dollar/World Currency pairs as they end streaks and hit s/r lines in addition to seeing the Dollar Index Futures as is shown on the Chart Below.
This is the way the Chart looks:
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Looks Like Trouble for Europe and the World
Even the least among us can, well, cause a mess, we have learned as Greece’s problems roll out around the world. First it was the Euro Dollar zone that found Greece’s problems couldn’t be confined to that country’s small economy. Then it was the entire European Union that caught the disease, as the banks in non-Euro Dollar countries found themselves holding a lot of sovereign debt that had once seemed risk-free. Even Hungary, which has been working with the IMF since 2008 and is about some 18 months ahead of Greece in getting its house in order finds the cost of insuring its debt rising, and its currency falling, as rumors of default are given credence by nervous markets.
America was next: so exposed are its banks to the problems created by Greece, Spain and other countries struggling to bring spending down to sustainable levels, so spooked are they by the prospect of Lehman Brothers Mark II, that President Barack Obama had to take time off denouncing BP to ring Spain’s prime minister Jose Maria Zapatero and urge him to do what Mr. Obama has failed to do in America: reduce the deficit.
All of which might at least have the virtue of forcing policymakers to follow the advice of Rahm Emanuel, President Obama’s chief of staff. Mr. Emanuel famously said “You never want a serious crisis to go to waste.”
But to waste it will go. The threat to continued economic recovery created by a badly skewed world-trading system won’t be resolved when the G-20 summit convenes in Toronto later this month, laying the ground for two new crises. China won’t float its currency, and Germany won’t stimulate domestic demand.
So long as America keeps shipping billions of dollars to China to pay for sneakers, T-shirts and (soon) cars, China will use those dollars to buy Treasury IOUs, keeping interest rates low and encouraging asset bubbles in America — bubbles, we now know, that, when pricked, burst with considerable force on economies around the world. We know, too, that so long as Germany lends money to Greece and its other EU partners to pay for Mercedes cars and other German manufactured goods, it will be diluting incentives in countries running persistent trade deficits to become more competitive.
“Imbalance” is the word, and it creates multiple threats to the stability of the world economy. There is little doubt that these “imbalances” were among the topics discussed at the meeting of G-20 finance ministers in Busan, South Korea, concluded this past weekend. And will be among the topics discussed at the G-20 summit in Toronto, once the ritual banker-bashing is concluded, probably at the private break-away meetings that are always the most important part of these gatherings — more important even than the photo-ops that permit the world’s leaders to show solidarity by posing for a group photo, often in the dress of the host country.
It seems that almost every country intends to power its way out of recession by exporting more. Mr. Obama has promised to double U.S. exports in the next five years; Britain is hoping to revive its economy by “making things” and exporting them; the troubled countries of southern Europe are being urged to undertake structural reforms to become more competitive exporters; and the German economy continues to outperform other euro-zone countries in part because a falling euro is driving an increase in exports.
In a period of high unemployment, imports are seen as stealing domestic jobs, especially by politicians more concerned about the next election than the next decade.
The solution, both in the case of the imbalance between China and the U.S., and Germany and the rest of the EU, is for both exporting countries to stimulate demand at home so that they are less reliant on exports to create jobs, and expand markets for goods made in the US and in EU countries.
Not an easy thing. China has to keep its export industries creating jobs for the millions who are moving from rural areas to its cities, or risk social unrest. Germany would have to adopt policies to discourage saving and encourage spending — a huge cultural change that successive governments have been unwilling to pursue. Which is why U.S. Treasury Secretary Tim Geithner’s call in Busan on Saturday for “stronger domestic demand growth” in surplus countries did not meet with an enthusiastic reception in Beijing and Berlin.
Neither China nor Germany seems prepared to adopt these policies. One new crisis will be created as EU members, unable to devalue to become more competitive with Germany, will retrench, aborting the area’s nascent recovery. The other is rising protectionism as America’s Democratic politicians, unable to persuade China to let its yuan rise, demand the erection of barriers to the flow of imports.
A crisis wasted, and two new ones created.
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MAN Frankfurt, a Long-Haul Upwards Rolling Convoy
MAN, the famous Trucking Industry manufacturer, has been on a roll since the end of February. It has gone up over 25% already and all valves are still in motion. I say this because the Monthly Chart indicates a “Three Wooden Soldiers” Japanese Candlestick pattern that is very bullish and shows usually as an indicator for more upwards movement.
Check out the Daily Chart below. It shows the current trend, intact and inside an almost perfect upwards tunnel. It also shows that MAN has passed an s/r line recently and retested it successfully. The Monthly Chart shows the candlestick pattern I spoke of and the height of the soldiers themselves speaks volumes about the strength of the signal the soldiers are making. It also shows that the 38.2% Fibonacci correction level has been passed and there is clear sailing, more or less, on a monthly level.
This is the way the Daily Chart looks:
This is the way the Monthly Chart looks:
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London’s a good place to be nowadays
The British Empire may rise again. The London Stock Exchange is the best-placed exchange in the world. It has not suffered from the corrections that plagued the rest of the world recently. Therefore it is not a surprise that WPP London is doing so well lately. RSI is in buying territory and MOM above 0 which are bullish signs. The Moving Averages 5, 13, 21 are in line for an upwards pattern. The line itself resembles a Gann Line with close to a 45 degree incline price/time. All this is on the weekly chart, for true traders (emotionless and cool) and people that can wait to see their profits come.
This is the way the Chart looks:
