End of Europe’s uptrend while America advances?

Good evening one and all,

While browsing through charts of my workstation, I noticed quite a difference between major European indices and American ones. The general picture of the European indices seems to be that of a high made in the middle of the year, then a collapse, followed by a quick recovery, then another fall, and a small recovery to where the markets stand now. American indices were tested when selling pressure came in a few weeks ago, but buyers came out fast and the indices made V-shaped recoveries. These V-shaped recoveries are quite reliable to be traded on: the buying pressure simply blasts the market back to where it was before the decline. What this all means to me – even as my previous sentences summarized the markets on both sides of the Atlantic. – is that US indices are still considered to be in their tremendously strong uptrends but European indices are looking quite “questionable” now – at least with regards to a long-term uptrend.

I will briefly say how I think the charts may be saying something about the general economic picture: If you consider the strength and shape of the uptrend of the US indices – and basic theory about how markets relate to one another internationally – it is quite obvious that US indices have been pulling the global indices along over the years – generally-speaking, of course; however, with my recent assessment of the charts of European indices, it seems to me like Europe may be facing harder headwinds soon. There are countless factors that can come into play – and I obviously do not want to go into them; not on this site at least –  and only when events come to pass can we look back and see everything play out on the charts. But it is something I will take note. American indices are definitely back on track, and there is no indication to me of any reason why American stocks will not continue higher.

In the first three charts below, I have the Dax, CAC 40, and the Footsie. The general picture is the same: a huge consolidation after a long and strong uptrend. The worrying thing is that the recent retracements cut deep, and the markets were not able to recover back to prior levels. This is very different from American indices that have shown healthy recoveries into the prevailing uptrend. I am not suggesting a crash in European indices – barring a global decline – but when I see such trends stall, it simply means more sideways trading in the months to come. Contrast with advancing US indices, Europe certainly should not be overweight in a portfolio.

Dax   Cac  ft

sp5

All analyses, recommendations, discussions and other information herein are published for general information. Readers should not rely solely on the information published on this blog and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.

Advertisements

One Trackback

  1. By Flavours for 2015 « TechnicalAnalysisTalk on January 4, 2015 at 10:51 PM

    […] for the new year is the possible divergence between Europe and US. I first discussed this view in this post – […]

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: