European Markets, Technicals

European Stock Exchanges Position To Correct Lower

WEEKLY STRATEGY

FTSE 100

Long-term Technical Outlook

The FTSE continues to work higher and has surpassed its 61.8% retracement of the decline from the 2007 high. The next level of potential resistance is the August 2008 high at 5649. A Fibonacci extension at 5811 would be the following objective. There is channel resistance at 5742 this week (increases 35 points per week).

Short-Term Technical Outlook

The FTSE has stalled ahead of the 5550.00 level with prices now edging below support at the bottom of a rising channel in place since late December. A move below initial support at 5507.24 exposes 5445.17.

DAX

Long-term Technical Outlook

Having held trendline support throughout the fall and winter, the DAX is nearing potential resistance from an extension (100%) at 6113. That level is where there are 2 equal legs higher from the March low. The 61.8% retracement of the decline from the 2007 high is also potential resistance. This level is reinforced by the surrounding congestion zone.

Short-Term Technical Outlook

GA minor rising channel has emerged after prices broke out of a larger bullish channel formation, with prices now testing support at 60661. A rebound lower sees support at 59741, while a breakout will expose the 61000 level.

CAC 40

Long-term Technical Outlook

The CAC 40 is testing a resistance line (drawn off of highs in 2007) this week. Exceeding this line would shift focus to the 50% retracement at 4317. The rally from the March low is in 5 waves (not labeled) and is therefore the first wave in a larger multiyear correction.

Short-Term Technical Outlook

The CAC is showing a Rising Wedge formation with negative RSI divergence, hinting that a bearish reversal is ahead. A break below the wedge bottom (now at 4026.82) exposes support at 3990.56, the 23.6% Fibonacci retracement of the most recent upswing.

IBEX 35

Long-term Technical Outlook

The IBEX looks most like the US indexes (especially the S&P) in that the index has broken higher from months of sideways trading. This in itself is bullish but there is potentially strong resistance at 1247. This is both the 61.8% of the decline from the 2007 high and the 100% extension of the first leg of the rally from the March low. Watch the underside of the former support line for resistance. The line is at 1278 this week and increases 14 points per week.

Short-Term Technical Outlook

Overall positioning shows Spanish shares are forming a Rising Wedge bearish reversal formation. Near-term resistance is seen at 1229.90, the wedge top, while support lines up in the 1203.22 – 1210.26 congestion region.

S&P/MIB

Long-term Technical Outlook

In October, the FTSE/MIB reversed from the 38.2% retracement of the decline from the 2007 high and subsequently fell beneath trendline support. The high has held but the decline is not impulsive. A move through 24568 would expose former support at 26464. Watch the underside of the former support line for resistance. The line is at 24979 this week and increases 294 points per week.

Short-Term Technical Outlook

Italy’s FTSE/MIB index is showing a Hanging Man candlestick ahead of the 24000.00 level, hinting that a corrective decline may be ahead. Initial support is seen at 23559.53, the 23.6% Fibonacci retracement of the latest upswing.