|European Weekly Review
24 April 2013 By Jackson Wong
|Weekly Change||P&F Trend||Stop|
|Euro Stoxx||268.16||10,464.7m||+4.92||+1.9%||Bear||17 Apr 2013||272.50|
|Euro Stoxx 50||2662.88||4,546.2m||+53.58||+2.1%||Bear||5 Apr 2013||2700.00|
|France CAC40 Index||3783.05||650.1m||+97.26||+2.6%||Bull||30 Jul 2012||3550.00|
|Germany DAX Index||7658.21||817.4m||-24.37||-0.3%||Bear||5 Apr 2013||7900.00|
|Netherlands AEX Index||349.15||610.3m||+3.36||+1.0%||Bull||29 Sep 2011||330.00|
|Spain IBEX 35 Index||8289.3||2,033.3m||+340.60||+4.3%||Bull||23 Apr 2013||7700.00|
|Sweden OMX Index||1172.79||628.1m||+5.31||+0.5%||Bear||5 Apr 2013||1220.00|
|Switzerland SMI Index||7802.48||257.3m||+84.88||+1.1%||Bear||17 Apr 2013||7850.00|
|Closing prices last 5 days|
European Macro Outlook
The macro situation for Europe appears to be improving. No sovereign credit crisis appears on the horizon. Reflecting this calmness is the recent downside breakout in the Italian 10-year bond yields.
For years, this yield surged to the upside persistently as fears of a credit crisis looms. No longer. The yield broke the 4% level and this affirms the long-term downtrend.
Such a benign condition is reflected in the steadiness of the Euro.
The Euro Index is amidst a medium-term uptrend, and just reaffirmed the 150-day moving average as support.
Overall, everyone is now expecting the ECB to hold back the crisis. This is creating a self-fulfilling momentum, especially as the market is expecting another rate cut soon.
The benign macro background is setting out a strong rally in markets.
The French CAC Index jumped to the top of the range after failing to break the 3600 range support. This will probably alarm the bears and induce short coverings.
Laggards are also heading up.
The Italian S&P MIB Index, for example, completed a base breakout at 16,000 to overturn the downtrend. It also broke the 150-day moving average (see right).
Equally short-term bullish is the IBEX 35 Index, which completed a minor base breakout.
More healthier indices, like the Swiss SMI Index, may even break out to new highs (see right). Yesterday's rally left a potential 'bear trap' at 7600.
Overall, the market's near-term risk is to the upside, as investors are now expecting more easing action from the ECB.
Tactically, I add some long positions this week.
It has not been an easy period to trade in Europe. One week up, next week down. This is reflected in the choppy action in the %10WMA breadth chart (see right).
Thus, I try not to do too much in a week, preferring to ride out the volatility.
Sector Bulls & Bears
The Banks Index is leading the market higher. This is a positive signal.
More often than not, a weak bank index leads to a deterioration of market action - and vice versa.
Here, the Stoxx Bank Index found support at 100 to probe the base resistance at 110 (see right). The index is also above the 150-day moving average. The near-term outlook is positive.
I highlight some interesting 52-week highs.
Sydbank A/S - is running to the upside after a brief consolidation to 118 (see right). This is the second step above the base and I envisage more upside potential.
Jyske Bank - broke out to the upside earlier this year, and is building a pattern of rising lows. The former peak at 210 provided only temporary resistance. I watch to buy on setbacks.
Scor Regroupe - reaffirmed support at 22 to break new highs. The pattern of rising lows, printed nicely along the 150-day moving average, should see the stock above 24.00. Overweight.
Lonza - is about to break out of the congestion band around 60. The medium-term trend here is firmly bullish and I think another leg up to 70 is not to be ruled out.
Mediolanum - is riding a medium-term uptrend and is gunning for a potential base breakout at 5.00 (see right). I watch to buy on a firm break of this ceiling.
AEM - could be a candidate for the medium term as the stock is developing a good base. Accumulation is taking palce at around 0.40 and a further rally into 0.60-0.80 is not to be ruled out.
Among the shorts, only Belgacom is moving into the desired direction. Prices collapsed beneath the 19.00 support and new cyclical lows (see right). I double the short here.
I add a new long in:
- A2A (AEM)
- Gas Natural (GAS)
- ACEA (ACE, see below)
All of them are developing good bases and ready to launch uptrends.
I close the short in GDF.
Intesa Sanpaolo and Banca Monte de Siena were stopped out.
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