| European Weekly Review 11 August 2010 By Jackson Wong |
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| Close | Weekly Volume | Weekly Change | P&F Trend | Stop | |||||
| Euro Stoxx | 266.15 | 6,728.8m | -2.52 | -0.9% | Bull 
| 27 May 2010 | 247.50 | ||
| Euro Stoxx 50 | 2800.02 | 4,301.8m | -18.95 | -0.7% | Bull
| 14 Jun 2010 | 2700.00 | ||
| France CAC40 Index | 3730.58 | 565.6m | -16.93 | -0.5% | Bull
| 14 Jun 2010 | 3400.00 | ||
| Germany DAX Index | 6286.25 | 481.9m | -21.66 | -0.3% | Bull
| 27 May 2010 | 6050.00 | ||
| Netherlands AEX Index | 333.14 | 414.9m | -5.86 | -1.7% | Bull
| 27 Jul 2010 | 315.00 | ||
| Spain IBEX 35 Index | 10718.5 | 1,102.8m | -152.90 | -1.4% | Bull 
| 11 Jun 2010 | 9800.00 | ||
| Sweden OMX Index | 1063.32 | 376.3m | -9.85 | -0.9% | Bull
| 11 Jun 2010 | 1010.00 | ||
| Switzerland SMI Index | 6395.02 | 221.2m | +57.30 | +0.9% | Bull
| 5 Aug 2010 | 6050.00 | ||
| Closing prices last 5 days | |||||||||
The rally in equities over the summer is proving to be treacherous. False break ups and fake break downs are spotted all over the place. Investors who thought it was safe to venture out will find (again) that markets don't go up or down in a straight line.
The Greek ASE Index broke the short-term uptrend this week, pausing the rally from the 1400 base (see right). A 50% retracement to the July rally is a distinct possibility, with the lateral support noted at 1600.
Other indices also paused their short-term uptrends, indicating that the bulls are not wholly convinced about the summer rally extending further.
A quick glance at the Euro Stoxx 600 Index reveals this bearish inclinations. After peaking at 270 in April, the continent-wide index remains beneath that peak.
As long as this high is not surpassed, a "head-and-shoulders top" pattern can not be ruled out (see right).
As such, we recommend taking a hedge long position in the volatility indices. Typically, this index goes up when equities suffer a flight-to-quality hysterical selling.
Moreover, as we enter in seasonally weak month in September, a long position here might be a good idea.
Technically, we find the VDAX Volatility Index interesting, It just broke the downtrend resistance at 20bps, and may rise to 26 in the next few weeks. With excellent support at 16, we watch to buy more if it declines.
Index Breadth
While the indices are softening, the breadth charts did not weaken as much. The SXXP p&f breadth, for example, remains on an uptrend (see right). It is not overbought and appears to have another 10% upside from here.
Sector Bulls & Bears
Among the sector indices, three worth watching.
One is Chemical, which broke upwards recently, above the 560 range resistance (see right). This could be an important technical signal.
But, we would not rule out a false break. A further rally from 560 is needed to confirm the breakout.
Retail is also at a crossroad.
The sector index is bumping against a natural resistance trendline - the upper side of a triangle pattern.
Will a breakout materialise? Possibly. Buying retailers may be a good idea to test this hypothesis.
The Personal & Household Goods Index is also coiling into a triangle pattern. Sooner or later, a breakout will arrive. Medium-term trend suggests the upside, but we watch for a confirmed break before doing any trading here.
Stock Action
Within the retail sector, a few stocks look interesting on the buy side.
Hennes & Mauritz, plotted on the right, is chipping the €233 resistance consistently. The breakout holds the uptrend, raising hopes of a further rally to €245.
Kesko is consolidating the huge price gap from €28. Usually, support emerges at the upper side of the gap, €29 in this case.
We watch to buy at around this level.
For PPR, there is a possibility of the stock holding above €100 and tests the €110 resistance. We watch to buy if the July support holds.
Elsewhere, we highlight two stocks to short.
One is Ansaldo SPA. There is a no better example of how a downtrend should look like. Lower lows and lower highs - consistently over March. We sell.
SR Teleperformance is also reasserting the downtrend, despite the fact that the downward momentum is decelerating.
Technically, there is no support until €17. We sell.
Model Portfolio
Unilever is proving to be a disappointing buy. Prices crashed from 24 to 21 in a matter of days, and now flirt with the May lows (see right). Not ruling out a further decline, we watch to sell on a rebound.
L'Oreal is melting away. We watch to close the long if the support at €60 fails.
The long position doing reasonably well is Michelin, whoch broke to new highs lately. Norvatis also moved deeper into profit as it strengthens the bounce from €50.
Merck is on a roll lately. We raise the stop here to €65 (see right).
We envisage a consolidation in DNB Nor, following a swift rally from €70.
We open a long position in the DAX Volatility Index and a short in STS and RCF.
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