European Markets, Technicals

European Stocks Consolidate, Bias Remains Bearish

WEEKLY STRATEGY

FTSE 100

Long-term Technical Outlook

The FTSE remains constructive until a drop below 4955. Potential channel resistance is not until 5483 today. The structure of the rally is bearish, taking the form of a correction (3 waves). What’s more, wave c is equal to wave a in percentage terms.

Short-Term Technical Outlook

The FTSE continues to consolidate near familiar levels with near-term support seen at 5299.75, the 23.6% Fibonacci retracement level. A break below that eyes the 38.2% Fib at 5239.62.

DAX

Long-term Technical Outlook

The DAX has found support from a support line extended from the March and July lows. A short term former support line may act as resistance at the current level. A continuation of the bear trend would be signaled on a drop below 5313. In the event of a new high, the 6000-6110 zone is resistance.

Short-Term Technical Outlook

As with UK shares, the DAX continues to trade sideways below 58475 with near term support at 57220, the 23.6% Fibonacci retracement level. The bias has looked bearish since prices broke lower out of a rising channel established from the monthly low at 53160.

CAC 40

Long-term Technical Outlook

The CAC 40 reached its 100% extension at 3892 and reversed sharply, eventually falling beneath the October low. A larger turn would be signaled on a drop below 3550. Trading above the October high would shift focus to 4000 and then channel resistance.

Short-Term Technical Outlook

French issues are testing resistance at 3858.36, the top of a rising channel that has guided prices since the beginning of the month. Initial support is seen at 3805.09, a horizontal resistance-turned-support level.

IBEX 35

Long-term Technical Outlook

TThe IBEX reversed at January 2008 low of 1194. Also, the index broke beneath the October low (red line) and trendline support. The rally from 1118 raises the possibility that the break was false however. Trading to a new high would expose a measured level at 1247. Under 1118 signals that the larger decline has resumed.

Short-Term Technical Outlook

Spanish shares remain caught up in the lower part of a rising channel set form the monthly low, with initial resistance seen at 1204.30, the channel’s mid-line. Clear negative divergence on the RSI oscillator carries a bearish bias, hinting that traders may see a test of channel support at 1180.35.

S&P/MIB

Long-term Technical Outlook

The FTSE/MIB broke beneath its support line for several days as well as its 50 day SMA. The moving average may be resistance now. The rally from March is in 3 waves and the recent reversal occurred following what appears to be completion of an ending diagonal. This is bearish evidence so I am looking for the decline to continue.

Short-Term Technical Outlook

The FTSE/MIB has remained under pressure since breaking out of a rising channel set from the monthly swing low. A shallow rebound is being contained by the 38.2% Fibonacci retracement level at 22979.57, with near term support at 22754.46 (the 50% Fib).