Article / 13 May 2014 at 8:37 GMT

European Stocks: Dax leads the way

Trader /
United States

• Bullish action in European indices
• Bayer AG stock moves towards EUR 107
• Ukraine/Russia still on editorial agendas

It has been a trying year for bulls on European stocks, particularly for those looking to the German Dax 30 (DAX.I) for leadership. That is until yesterday, when the index finally smashed through the four-month long diagonal resistance line with a vengeance. For those of us keeping an eye on price action in European stocks, both in relative and absolute terms, yesterday's move was a long time coming, as I have said in this column over the past few months. The breakout was also helped by a healthy dose of short covering by investors that last week decided to short into the lows. But as I told one of my clients last week, shorting/selling a low when an established pattern of higher lows is still intact isn't a high probability strategy. Of course, it was easy for any market participant to slip into a bear costume considering the financial media's constant focus on the Ukraine/Russia situation. This highlighted the mostly worse-than-expected economic data, and just generally continued in a fear-spreading mood. For yours truly, having kept a marginally bullish posture throughout the first few months of this year wasn't about stubbornly playing lone-wolf and holding a contrarian view but rather about letting the market tell me what to do. 

So with the German Dax 30 (DAX.I) having finally cleared resistance, the next obvious attraction level on the upside is the 10,000 area with first support being Monday's breakout lows. My time-frame for a potential reach of the 10,000 is two to four weeks.


German Dax 30
Source: Saxo Bank

Although the Dax led Monday's stampede, there was plenty of other bullish action taking place in other European equity/country indices. In the UK, the FTSE 100 (FTSE100.I) also moved higher nicely and right back to a resistance line that dates back 12 months. The index however consolidated nicely over the past week-and-a-half, and yesterday's breakout should now have enough momentum to carry the FTSE towards the 7,000 mark sooner rather than later.

FTSE 100
Source: Saxo Bank

On the single stock front, the German pharmaceutical company Bayer AG (BAYN:xetr) made a positive push higher out of a tight two-week trading base and past its January diagonal resistance line. This momentum here looks good for the stock to move towards EUR 107.00 over the coming weeks.

Bayer AG
Source: Saxo Bank

-- Edited by Kevin McIndoe

 Serge Berger, an active trader since 1998, is a leading specialist in Trend Following. Read more of his regular commentary on our social trading site here.


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