by Dana Lyons
European equity indices are testing key levels of bull market support.
The recent (ongoing?) equity correction has not merely been a U.S. event. Most stock markets around the globe have also suffered drawdowns in concert with the U.S., to varying degrees. Some have experienced mere “flesh wounds” while others have really taken it on the chin. Falling into the latter category would be European stocks, broadly speaking.
Most of the core European markets got hit every bit as hard, or harder, than the U.S. Perhaps the most discouraging thing, though, is that they have yet to rebound nearly as sharply as much of the U.S. market has. And, in fact, in the recent re-test/retracement, many core European markets actually dropped below the levels of their early February correction lows. On one index in particular, this re-test has brought it down to a potentially very key area.
As presented earlier in our #TrendlineWednesday feature on Twitter and StockTwits, the popular broad European index, the STOXX Europe 50, has now dropped down to where it is testing the Up trendline stemming from its March 2009 lows.
Some technical tests are obviously more important than others. While many of the major U.S. indices have tested various trendlines and other manners of support on a shorter-term basis, this test by the STOXX 50 is a bit more significant. This is a test of the integrity of its 9-year bull market. A failure here may well lead many technicians to trash some their European exposure.
On the other hand, this support level may be just what the doctor ordered for European equities which have had a rough start to their year. The trendline may serve as a rally springboard as it did at the early 2016 and Brexit lows. Although, even if it bounces, the region’s present under-performance may be cause for a relatively short-lived rally. Either way, the reaction of the STOXX 50 at this level certainly bears watching.