The Euro Stoxx 50 is starting to look interesting from a technical and fundamental perspective, as European equity markets could be about to benefit from positive risk sentiment sweeping through global financial markets at the moment.
Riskier asset classes tend to do well when the markets mood is buoyant, and with European equity markets currently appearing relatively undervalued compared to their United States counterparts, the Euro Stoxx 50 is worth watching.
The Euro Stoxx 50 is heavily comprised of German and French stocks. Both Germany and France are considered to be the top economies in the eurozone, and hence the quality of the heavyweight stocks inside the German DAX and the CAC 40 are perceived to be on a higher level.
From a fundamental perspective, the German DAX has many reasons to rally at the moment. Markets are forward looking, and any notion that the German economy will soon be improving as the world comes out of lockdown could cause a major rally in German stocks. The technicals for the Ger 30 are also superb above the 14,000 level.
It is a similar story in France with the CAC40, as the nation’s heavily service sector led economy could rebound sharply once the lockdown is over. The ongoing appreciation of the euro currency is the only drawback for the Euro Stoxx 50 at the moment.
Going forward, potentially undervalued stocks could ride the wave of optimism in Europe, making the Euro Stoxx 50 an attractive play if the positive sentiment continues to stick, and investors look for so-called real economy stocks that have been out of favour with investors during the lockdown.
Looking at the ActivTrades Market Sentiment some 83% of traders are bearish towards the Euro Stoxx 50, despite the index holding above key support on numerous occasions. I suspect the index will continue to head higher while sentiment remains this negative, as retail traders lean against the prevailing bullish trend.
Euro Stoxx 50 Short-Term Technical Analysis
The four-hour time frame shows that a bearish head and shoulders pattern has recently formed and is projecting an upcoming drop towards the 3,000 level for the Euro Stoxx 50.
According to technical analysis buyers need to move the price above the 3,740-resistance level to invalidate this extremely large bearish price pattern and avoid the mentioned price drop.
I suspect that the pattern will be invalidated, and we will see a counter move towards the 4,000 level instead over the coming days and weeks.
Source By ActivTrader.
Euro Stoxx 50 Medium-Term Technical Analysis
Looking at the higher time frames the daily chart shows plenty of scope for upside, as the Euro Stoxx 50 is trading inside a large rising price channel pattern. Which is pointing towards the 4,000 level as a possible target.
As long as the price trades above key support, around the 3,600 level, we are likely to see the index gravitate towards the top of the price channel. Some caution is advised for bears if we break above the channel, as the index could then going into parabolic mode and breakout towards the 4,500 and 5,000 levels.
Source By ActivTrader.