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European Equities indicate no apocalypse awaits Europe in near future

European Equities indicate no apocalypse awaits Europe in near future.


$EURO TOP 100:


European equities, including FTSE, march together although the shape of their rallies and corrections, and the highs and lows vary widely, depending on country specific factors.  Currently, one of the most crucial decisions market has to make is being debated in EU markets across the board.


The big question before the markets is this:  Did the low formed in June, 2012 signal the end of the correction to the rally in world equity markets that commenced in March, 2009?  The answer to this question will determine whether we turn down from current levels for another bout of bloodletting, or continue into a bull market that could take us to new highs till the End of August, 2013.  A lot of fortunes ride on this decision.  Hence the need to look for clues in every nook & corner of the world.  The issue is in play in EU markets, ostensibly the weakest area in terms of growth, deficits and unemployment numbers.  What are EU markets saying?


From the chart of the Index of top 100 EU companies, a few things stand out:

  1. The correction from February 2011 to June 2012 qualifies as a regular bullish correction to the rally in stocks from March 2009 to February 2011.  The dates may vary slightly from index to index but are near enough to have the same pattern.  [Not possible to show the March 2009 to Feb. 2011 rally on the charts here.]
  2. The 250 level on the charts marks the inflexion point after which all debate ceases.  Should markets rally beyond 250, we are undoubtedly in a bull market that began in March 2009 and will continue well into 2013.
  3. If the index rallies beyond 230, you have an unambiguous higher high and a higher low in place for the rally from June 2012 that increases the probability of 250 being taken out.
  4. Markets even at these crucial levels, markets are not over bought and the momentum favors the bulls.

There are a variety of other factors like wave counts and intraday chart patterns that indicate a continuation of the rally that I will not discuss here.  One point I can adduce.  If you look at markets across the board – US, EU, India – the recent pattern has been to slide down sideways and then rally in a corrective bounce that exceeds the “impulsive sliding fall”.  This pattern can resolve either way with time – the slides can prolong & bounces diminish, or vice versa.  It is a fascinating way to study the real auction process in markets played out as a structured game with real money.  So far bounces have exceeded the initial fall & appear to lengthening instead of shortening as they would in a normal correction.


In short, there is now a real possibility that the markets may rally straight through to middle of 2013 where we were actually expecting a correction that was baked into the market structure.  There is no confirmation yet, and it will not be proper to act on the outcome laid out here as yet.  One must wait for confirmation.  This piece is more of an alert to draw attention to the crucial point being worked out by the markets; nothing more, nothing less.  On the chart, a rally past 250 will be a good confirmation that the bull markets from March 2009 continues through to 2013.


German DAX [$DAX]:


DAX is far ahead of the first chart of Euro Top 100, in confirming June 2012 as the end of the correction for the run up from March 2009 to May 2011.  [Note the difference in dates for tops.]  DAX has already rallied past 7200 and pierced through the downward sloping trend line from May 2011 to March 2012.


The final act of confirmation will come upon a rally past 7600.  Note DAX is currently at 7412.  DAX is slightly overbought but has momentum on its side.  As the strongest economy in the EU, it is not surprising that DAX leads the way.


While there is guarantee that all other EU markets will follow the DAX pattern, there will be rallies in those markets as well should the DAX break above 7600.


French CAC40 [$CAC]:


The French market is structurally much weaker than the DAX as should be obvious from the two charts above.  But the critical chart points and structure are analogous.  The critical question is:  Was the low in June 2012 the end of the correction to the rally from March 2009 to February 2011?


CAC is poised just below the critical 3585 level.  Note DAX has already negotiated well above that analogous point on its charts.  Will the CAC follow likewise?


Note CAC too has pierced through the downward sloping trend line from February 2011 to March 2012.  It too has a series of higher lows and needs another higher high to confirm an uptrend which a rally past 3600 will confer.  Therefore, it is not unlikely that CAC will rally on past 3600 to test 4150.


UK FTSE 100 [$FTSE]:


FTSE is true blue-blood British giving nothing away while being in lock-step with the European cousin.  Looks like it has more professional traders making markets than in EU.  That said, let us take a look.


FTSE hasn’t broken the downward sloping trend line like DAX and CAC.  But it is at the exact same analogous point as CAC is.  Moreover DAX has already rallied past the analogue of the point at 6000 that FTSE is testing.  See how professional the Brits are?  They give nothing away unlike the “stupid” European cousins whose “game plan” is far easier to decipher.


The English can only be deceptive till 6000 is taken out.  After that, the chart reads identical to the DAX or the CAC so I will not belabor the point any further.  Watch the 6000 level.


Spanish IBEX [$IBEX]:


Not surprisingly, Spain’s IBEX is much weaker than DAX, CAC or FTSE.  It even has a lower low in early August that’s nominally below the low at June 2012.


Nevertheless, the attempt to rally past 9500 is obvious and may happen depending on how markets shape out in Germany, France and UK.


IBEX is NOT indicating an end to the ongoing correction like the stronger EU cousins.  But that doesn’t mean it can’t participate in the likely Europe wide rally with a corrective bounce when it happens.  Watch 9000 like a hawk.


Italian FTSEMI:


The Italian MIB chart is more or less analogous to the Spanish chart complete with a lower low in July than the one in June.  So like the Spanish chart its not signaling any bottom as yet.


Neither has it taken out the 17,000 nor tested the downward sloping line from February 2011.  Instead MIB is simply into a bear rally challenging the 17,000 level which it could take out in sympathy with other market.

All said and done, there is an appreciable probability that the EU markets could rally on moving sideways but with an upward bias for some more time.  And this trend could consolidate into a tradable uptrend as participation increases.  There is no confirmation yet that this will happen.  In the absence of confirmation, the current down trend should be assumed to be in place.


The first confirmation will come when DAX breaks past 7600. So that is a market that should be on everybody’s watch list.  But until that happens don’t trade on this scenario.



NB: These notes are just personal musings on the world market trends as a sort of reminder to me on what I thought of them at a particular point in time. They are not predictions and none should rely on them for any investment decisions.



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