The Euro Stoxx50 has moved into price discovery as the broad composite of top European companies advances towards the benchmark 4,000 level. The sudden rise in the German DAX is a major contributing factor to the sudden breakout in the index.
Optimism towards European stocks can clearly be seen in the Eurostoxx 50 right now, after bulls took the index above the February 2020 trading high, and effectively reversed all the index’s COVID-19 pandemic inspired losses.
Heavyweight names inside the Eur50 from across Europe have been powering the index higher, especially those from Germany and Italy. Optimism towards the US economy is helping to boost sentiment towards German and Italian manufacturers.
Falling bond yields in the United States has provided a sign of renewed market optimism, which have created a “goldilocks scenario” for European stocks, as stock traders bet on lower US rates and more QE from the FED during a time of expected economic expansion, which could trickle down to Europe.
On the technical front, the 4,000 level is a huge resistance level for the Euro Stoxx50. A bullish price pattern is currently predicting that a monumental upside move could be about to take place.
Additionally, the index is also supported by the ongoing breakout up move above 15,000 in the German DAX, which bodes well for leading German companies inside the Euro50. Both indexes have notable bullish pattern, with huge upside target.
The ActivTrader Market sentiment tool shows that traders are still heavily bearish, with 91 percent of market participants holding a negative bias towards the Euro50. This sentiment skew is starting to reach epic proportions.
Typically, when sentiment gets these one-sided moves take place to squeeze the herd on the other side of the trade. This could get very nasty for Euro50 bears, especially if the 4,000 level breaks soon.
Euro50 Short-Term Technical Analysis
The four-hour time frame shows that significant amount of negative MACD price divergence has built during the recent rally towards the psychological 4,000 resistance level.
According to the overall size of the negative MACD price divergence the index could be preparing to drop back towards the 3,850 area.
Traders should note that a sustained break above the 4,000 level would negate that bearish outcome and could provoke a huge upside breakout.
Euro50 Medium-Term Technical Analysis
Looking at the daily time chart, a huge multi-month break is in place, with price moving above the neckline of a large bullish reversal pattern, that holds 2,000 points of upside potential.
The bullish price pattern in play while the price trades above the 3,850-support level. Bears must be extremely careful as the pattern is now starting to play out and the upside in the index has been accelerating.