Thursday, January 9, 2014

Eurozone: Rising Like A Phoenix, Part 3

Last August, I wrote about how Eurozone stocks were defying the doubters by "tearing it up" at the time. In October, I again discussed the bullish outlook for this region and further pointed out that the strong move in these equities was just another example of "prices reacting well ahead of any news."

Don't look now but Eurozone stocks are heating up again.

Over the last 20 trading days, the S&P 500 is up by a bit more than 1.6%, but as shown in the chart above, Eurozone ETFs have performed significantly better with the Euro Stoxx 50 rising by 4.1% in the period. 

In fact, the Euro Stoxx 50 Index chart continues to look very bullish.


The Index broke out of a bullish cup-with-handle formation in December 2012 and proceeded to make higher highs with slightly lower lows, more or less holding up at support around 2600. Last September, the Index successfully broke through an ascending trend line, now serving as support at the 2950 level.

It's important and very revealing to show a chart of the poster child of all that was going wrong in the Eurozone region not that long ago.

The Global X FTSE Greece ETF (GREK) plunged in the summer of 2012, getting to as low as $9, before making the slow and quite volatile climb to its current level of $24. Note in the chart above that GREK established a double-bottom last year (blue circles), which ultimately became a portion of a bullish cup-with-handle formation. With the start of this year, GREK has broken out of the handle, inferring price should run further from here. But the bottom line is for Greece equities to appear this bullish, something(s) certainly must be changing for the better in the region!  

Perhaps my favorite Eurozone ETF has been Spain.

The chart of the iShares MSCI Spain ETF (EWP) displays two overlapping bullish formations. Drawn in red is a cup-with-handle formation including the recent break out of the handle, and in blue is an inverse head-and-shoulders formation with a clear breach of the neckline last September. Need I remind that although Greece received most of the attention initially when the euro crisis erupted, Spain (and Italy) was the next country to receive ample scrutiny as default risk became a real concern.

It's encouraging to see that EWP has more than doubled off the bottom in 2012, yet it's not especially surprising. As is often the case when a crisis situation occurs and is then alleviated or resolved, what leads markets off their extremely depressed lows are typically the riskiest assets, and in this case Greece and Spain certainly qualify.

I could show more bullish charts for countries in the region but they all generally look good to great. Again, Eurozone equity charts have been (correctly) indicating for some time that the region has taken a meaningful turn for the positive, and recent economic data has indeed been improving -- surprised?

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