The Euro Stoxx 50 is in price discovery above the 4,150 level as the index trades at levels not seen since December 2008, due to ongoing breakouts in German, Italian, and Spanish stocks.
Breaking down the nationwide stock market breakout, the German DAX and the ITA40 are trading at new all-time highs, while the CAC40, the leading French index, is moving within touching distance of its all-time high just above the 6,920 level.
The Euro Stoxx 50 is comprised of leading European stocks and has a particularly heavy weighting of French and German stocks. Both Germany and France are considered to be the top economies in the eurozone, so when stocks inside the German DAX and the CAC 40 rally, it is likely to be extremely bullish for the Euro50.
Bullish data from Germany over the past few weeks has been very positive for the Euro Stoxx 50 index, such as the recent IFO and ZEW prints. If the German economy is faring well then it increases the overall chances of eurozone consumption increasing.
With other index’s moving to new all-time highs, it is prudent to look at the just how high the Euro Stoxx 50 could trade. The 4,500 level is realistic target at this stage, however, the index’s all-time is some way away, at 5,527.
Technical analysis shows that key monthly trendline resistance is the next major hurdle ahead, around the 4,450 level. If this trendline was to break I would not discount the potential for 5,000 to be hit.
Looking at the ActivTrades Market Sentiment some 79% of traders are bearish towards the Euro Stoxx 50, despite the index hitting decade highs. Bearish sentiment is actually increasing while the index breaks higher, this is a very bullish sign.
Typically, retail traders have poor market timing and lean against the prevailing market trend. I tend to believe that the Euro Stoxx 50 will only continue to head higher while sentiment towards the index remains extremely negative.
Euro Stoxx 50 Short-Term Technical Analysis
The four-hour time frame shows that a bullish breakout from an inverted head and shoulders pattern is underway and is projecting an upcoming rally towards the 4,250 level for the Euro Stoxx 50.
According to technical analysis buying price dips towards neckline support, around the 4,050 level could be the best strategy in the short-term, in expectation of further upside towards 4,250.
Euro Stoxx 50 Medium-Term Technical Analysis
Looking at the higher time frames the daily chart continues to show plenty of scope for upside, as the Euro Stoxx 50 has invalidated a huge head and shoulders pattern after moving above the 3,850 level.
As long as the price trades above key support, around the 3,850 level, we are likely to see the index gravitate towards the 5,000 level, and possibly the 5,500 level over the long term.