Article / 24 January 2014 at 10:35 GMT

European stocks: FTSE looks primed for breakout

Trader / TheSteadyTrader.com
United States

There have been just three trading weeks in 2014, and so far, little noteworthy trading action in Europe. Sure, European equities are marginally outpacing their US counterparts but that's simply comparing one lacklustre tape with another. More action can be seen on the single-stock front but it has still been sluggish over the past few days. For my part, it feels as if market participants need a new "thing" to focus on, something that spurs further risk-taking, or unloading of risk.

After making my weekly rounds with my "smart investor" clients and colleagues, most of their positioning regarding European stocks remains fairly diversified around Europe. Others have taken a little risk off the table and are in a wait-and-see mode.

Many eyes are still, rightly so, glued on the World Economic Forum developments in Davos; the annual gathering of the global business elite always offers plenty of soundbites worth analysing, and some even worth trading on. 

Today's biggest events at Davos concerning European stocks are likely to be the speeches of the Bank of England governor Mark Carney, at 13.00 CET, followed by the European Central Bank president Mario Draghi at 18.00. 


Davos

The immediate future of European stocks will be under the microscope in Davos. Photo: Shutterstock.com 


I shall be closely listening to what Carney has to say, particularly given the recent spout of better-than-expected economic data, although he did stress that no immediate interest rate rise is necessary. 

Yours truly is getting more bullish on UK stocks, however, and the recent breakout in the pound versus the euro on the weekly chart is just one extra reason why.

GBP/EUR
Source: Saxo Bank

At the end of last year, I posted the weekly chart of the FTSE 100 (FTSE100.I), which spans back to the late 1990s (see below). Since then, the index has found resistance very roughly around the 6,800-6,900 area on three occasions. After bumping into this area again in May of last year, the FTSE began to consolidate below this area of resistance, which increasingly looks like bullish churning that could lead to a breakout sooner rather than later. 

FTSE 100  
Source: Saxo Bank

In terms of the German Dax 30 (DAX.I) and the Eurostoxx 50 (FESXc1), both remain, at least near term, overbought and not in any juicy spot for any risk-taking. With yesterday's global sell-off, both indices also came in to a degree but not enough yet to interest me in a buy-point as yet. As I have mentioned, investors are now looking for a better catalyst to drive markets.

Eurostoxx 50 Daily Chart  
Source: Saxo Bank

On the single-stock front, Kingfisher (KGF:xlon), the home improvement retail giant, has been trading in an uncharacteristically tight pattern as of late. In the medium term, the stock has traced out a descending triangle formation, which if broken below GBP 360 is bearish, and if broken above GBP 395 is bullish. It's definitely a stock worth keeping on the radar.

Kingfisher plc
Source: Saxo Bank

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