Article / 22 April 2014 at 8:36 GMT

European Stocks: Positive bounce for the bulls

Trader / TheSteadyTrader.com
United States

• Plethora of single-name stocks will be turning higher
• German Dax 30 has to overcome multi-month resistance
• Volkswagen earnings report due next week

It seems like an eternity ago since I last put pen to paper on my thoughts on the state of European stocks - a long weekend tends to have that effect. Even though there have only been three trading days in European stocks over the course of the past week because of the Easter break, last Tuesday's price action had the makings of a potentially important near to medium-term bottom.

After having mostly focused on single-name stocks for the better part of the past few months in European markets, given last Tuesday's potential capitulation bottom, my focus at least for the coming days will be on the indices for direction. For, if the indices can continue to bounce and eventually break out of their multi-month trading ranges, then a plethora of single name stocks will also be turning higher, and this is likely to take place in a group and sector rotation manner. In other words, a great number of trading setups should present themselves as we can play single-name stocks breaking higher, one group at a time, on the back of a an eventual upside resolution in the Euro Stoxx 50 (FESXc1) and the German Dax 30 (DAX.I).

For context, let's look a little closer at last week's action in the Euro Stoxx 50 (FESXc1):

First, note that the bottom of the range continues to be bought aggressively - see the quick and bullish turnarounds twice in March and then again last week. In that vein, last Tuesday April 15 I said that "I would be happy to buy the lower end of the range, closer to the 3,000 area for a bounce, as much as I would be glad to buy a break past resistance around 3.160". Sure enough, that day the index took a sharp turn lower intraday, coming close to the 3,000 mark, before rebounding quickly and leaving behind on the daily chart a bullish so-called hammer candle. The hammer candle is defined by its long tail (the intraday sell-off), and a small-ish head.

In essence, last Tuesday's price action showed that the bears did not have what it takes to push prices lower as they quickly capitulated and let the bulls take over. Over the following two days the stocks pushed higher and thus displayed good follow-through buying. So far, this has allowed quicker traders a great risk/reward long-side try against last Tuesday's lows but the Eurostoxx 50 as well as the German Dax 30 still has to overcome multi-month resistance before we can play more aggressively from the long side. In the meantime, bulls can hang a hat on last week's strong bounce off the lows but shouldn't get complacent just yet.

Euro Stoxx 50
Source: Saxo Bank

One stock that could benefit in the early stages of an eventual break past resistance in the German Dax is German car manufacturer Volkswagen AG (VOWG:xetr). The stock is already toying with a break past multi-month resistance and a push higher by the broader market could get the stock to finally clear resistance. Please note that Volkswagen is scheduled to report earnings on April 29.

Volkswagen AG
























Source: Saxo Bank


1y
Sergei Sergei
Good day!

Why not to think about BMW GY? The picture looks even better. Also BMW cars are better then VW.

Have a nice day, Laptev Sergey.
1y
Serge Berger Serge Berger
Hi, BMW looks good too, nothing wrong with that.
1y
Sergei Sergei
Also I would like to draw your attention to Auto Parts &Equipment Industry. The interesting fact is that this industry looks even more positive the car producers.
1y
Serge Berger Serge Berger
I very much agree, nice and defined risk too in that space

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Tradingfloor.com permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Tradingfloor.com and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Tradingfloor.com is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Tradingfloor.com or as a result of the use of the Tradingfloor.com. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. When trading through Tradingfloor.com your contracting Saxo Bank Group entity will be the counterparty to any trading entered into by you. Tradingfloor.com does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws. Please read our disclaimers:
- Notification on Non-Independent Invetment Research
- Full disclaimer

Show latest activity
Check your inbox for a mail from us to fully activate your profile. No mail? Have us re-send your verification mail