US leads, Europe testing highs

Evening all,

Another week of trading sees the S&P 500 dancing in 1700 territory. US markets have been proving to be very strong, and global markets are taking cue. European markets are now very near or at important previous highs. I look at the Dax, CAC 40, and FTSE 100.

The Dax is already trading past all-time highs. (As a side note, this is a classic example of the fundamentals being reflected in the chart. Germany is regarded as the strongest nation in the EU). 8100 is closest support. Whichever time frame you are on, the uptrend is very strong. I also do not see any reason why the Dax should not continue higher. The next few weeks of trading will show if the Dax can remain at such a stratospheric level.

dax

The footsie is also trading at all-time highs – albeit slightly below and not above like for the German bourse. However, I am seeing some room for downside in the Footsie. A V-shaped kind of pattern – different from a V-bottom – depicts recent price action. I am usually cautious of such a formation on the chart as it is usually followed by consolidation in the next few weeks. In the long-run, however, as a trend-follower, I like to see highs being tested.

ft

Next up, we have the CAC 40. Despite performing very badly in 2011 – returning down to test 2008 lows – CAC 40 has managed to recover to post-crash highs at the 4100 region. CAC 40 did run up there earlier in the year before succumbing to the June correction. Like the footsie, I see a V-shaped formation which is not supposed to be a very bullish sign. For now, I have to respect the resistance at the major high; though, if markets continue to move up convincingly, these bourses should take cue.

Cac

All in all, I continue to wave the bull flag because of the clear uptrend in major indices. The smaller European indices like Greece, Italy, and Spain may not paint the same picture as Germany’s; however, most other indices are on the same uptrend path from several years ago. In the short-term, majors highs are being tested, so the next few weeks should tell us if stocks are ready to soar to new heights. If not, this major high will send the market down for another correction like what we had in June.

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