European Markets, Technicals

European Stock Exchanges Position to Resume Decline

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

FTSE near-term positioning favors the downside as prices trend lower in a falling channel. Near-term resistance is seen at 5511.66, the channel top, while support is found in the 5440.22-5455.37 congestion region. A below this barrier exposes 5390.58.

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

German shares have trended lower since breaking below rising trend line support, with price action guided by a well-defined falling channel. Prices have come off the bottom of the formation to re-test support-turned-resistance at 59350. Renewed bearish momentum from here will target another test of the channel’s lower boundary, this time at 58452.

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

As with its German counterpart, the CAC has broken below rising trend line support and is being guided lower by a falling channel. A bounce from the channel bottom has stalled below support-turned-resistance at 3979.15, with renewed selling to target 3933.91.

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

Madrid issues are positioned broadly in line with the DAX and CAC: prices have taken out rising trend line support and are trending lower bounded by a falling channel. Near-term support has been found at 1185.46, the 50% Fibonacci retracement level, with an upswing to aim for the 38.2% Fib at 1194.56. Alternatively, a break lower exposes the 61.8% Fib at 1176.35.

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 benchmark index seems to be stalling behind its counterparts in Germany, France and Spain. Indeed, while those indexes have broken lower, the FTSE/MIB continues to test rising trend lie support, with the hurdle reinforced by the 23.6% Fibonacci retracement level. Nonetheless, cues from other major exchanges suggest the path of least resistance leads lower, with the next level of relevant support on a breakdown past current levels found at the 38.2% Fib (23040.84).