Article / 05 May 2015 at 10:30 GMT

European stocks: Slow train coming

Trader /
United States
  • European equities trend remains bullish
  • EuroStoxx50 likely to push higher in coming months
  • UBS beats earnings estimates, stock soars

By Serge Berger

After an easy start to the year where nothing could derail the quantitative easing bazooka from the European Central Bank, the going for European equities since early April has gotten decidedly more challenging. 

Bern, Switzerland

Call it the resurgence of the European bear. Photo: iStock

In the bigger context, however, the trend remains higher – sector rotation continues, periphery markets still look constructive, and the ECB shall remain dovish. All of these things are supportive for stocks, at least into the summer months. 

Starting off with the EuroStoxx 50 (STOXX50E.I) we note that the strong first-quarter rally led to a classic overshooting move that took the index out of its orderly uptrending channel that had been in place since 2012. Through the lens of momentum analysis, however, note that the early April highs coincided with a new high in the Relative Strength Index at the bottom of the chart. 

More important multi-month tops rarely come on new highs in momentum but rather on tops that see a negative divergence from momentum. From this perspective, another rally attempt for this index is very likely over coming weeks/months. 

Taking a closer look the price action over the past few weeks for the EuroStoxx 50 has taken the shape of a classic a-b-c type correction/consolidation pattern that also points to another push higher in coming weeks/months.

Euro Stoxx 50

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Source: Saxo Bank

As a side note but important point from the bond market, we see that the recent selloff in German Bunds has now mean-reverted back to the uptrend line from early 2014. In other words, in the near term at least the high-probability short in the Bund is likely over.

German Bund 10 Year

Source: Saxo Bank

With this week's focus on the UK elections I would be remiss not to discuss the FTSE 100. I note that last week's selling stopped right at the previous line of resistance around the 6,900 area. While the immediate post-election move can whip this index in any direction, a push above the 7,080 area again puts the odds in favour of a move toward the next upside target near 7,500.   

FTSE 100

Source: Saxo Bank

On the single stock front, Swiss financial giant UBS (UBSN:xswx) is rallying hard after handsomely beating estimates of its latest financial results and breaking above horizontal resistance that stretches back to 2009. Note that the breakout move is coming after a higher low earlier this year, which through a multi-month lens is a constructive move and should see the stock higher still.   


Source: Saxo Bank

— Edited by Michael McKenna

Serge Berger is a specialist in swing trading/trend following. Follow Serge or post your comment below to engage with Saxo Bank's social trading platform.


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