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European Stock Positioning Turns Clouded as Bears Lose Momentum

FTSE 100

Long-Term Technical Outlook

The FTSE is at risk of at least a pullback if not an outright reversal as daily RSI has rolled over from overbought territory.  At best for bulls, the FTSE decline will be a B wave.  At worst, the drop will be the next leg of the longer term bear.  The rally from the low is not clearly impulsive, so the latter certainly is possible.

Short-Term Technical Outlook

The FTSE has broken below support at 4270.63, the 23.6% Fibonacci retracement level. The UK benchmark index now targets the intersection of the 38.2% Fib and the 100-day moving average (4115.00).

DAX

Long-Term Technical Outlook

The DAX pattern is the same as that of the FTSE 100.  The rally does look more like an impulse (5 waves) though, so the decline underway may be a B wave.

Short-Term Technical Outlook

German shares found near-term support at 46885, a familiar pivot level, and rebounded above the 23.6% Fibonacci retracement level. The door is now open for a return to the 14.6% Fib at 49495.

CAC 40

Long-Term Technical Outlook

The decline from the 2007 high in the CAC 40 is in 5 waves and either wave 1 or 5 is extended.  It seems more probably that wave 5 is the extended wave because if wave 1 were extended then wave 2 would be uncommonly small.  Either way, the index is most likely headed higher over the next several months but not before a sizeable correction of the gains from March.

Short-Term Technical Outlook

The French benchmark index has been trending lower in a narrow falling channel since breaking below support at a rising trend line that had guided the CAC since early March. A Hanging Man candlestick at the upper boundary of the channel suggests the next leg of the down move may be near, with initial support at the 100-day moving average.

IBEX 35

Long-Term Technical Outlook

Same story with the IBEX 35.  The rally from the low (6703) is corrective but is probably just the first leg of a larger correction.  The next several months should lead to a choppy B wave decline.

Short-Term Technical Outlook

The IBEX found near-term support at the 14.6% Fibonacci retracement level and has rebounded to re-test triple top resistance at 97240, a level now also bolstered the lower boundary of a previously broken rising channel. A Hammer candlestick at this juncture hunts at a move lower from here.

FTSE MIB

Long-Term Technical Outlook

The FTSE MIB (Milan) index took the same structure as the CAC 40 on the way down from its 2007 high.  The 200 day SMA has held as resistance and the index is headed lower in what is probable a B wave.

Short-Term Technical Outlook

Italian shares continue to try to resolve a favored directional bias around 18726.68, the 23.6% Fibonacci retracement level. A break lower would see near-term support at the 100-day simple moving average while a move higher will meet resistance at the psychologically significant 20000 level.