Tech View: The bullish case for Europe and a very interesting long/short trade idea
Euro Stoxx 50 Index (2,985 last) – while above 2860 favor a move higher towards the 200dma at 3173 and then 3316
· Through November 2015 to February 2016 the Index traded in a declining channel. After completing a 5 wave move lower the Index broke out to the upside from its declining channel, the breakout level is 2,860 and while above it the Index should continue higher.
· We continue to view the current move as a correction and therefore treat it as an A,B,C pattern. We believe that 2860 represents the bottom of wave B and therefore expect one more leg higher (wave C). If wave C will equal wave A in its length one should expect a move higher towards 3,316.00. The fact that the wave C target of 3316 is also very near the declining trend line connecting all the highs since April 2015 makes me believe this target could be reached.
Daily chart
Dax30 Index (10,043 last) – while above 9,484 a move higher towards 10,700 should be on the cards
· Similar to the Euro Stoxx index the structure here remains bullish as long as 9,484 caps the downside. 9,484 is the recent higher low and therefore while above it the short term trend remains to the upside.
· The nearest resistance level is the 200dma at 10,194 and then April high at 10,474. A move above 10,474 would make the 9,737 the new important low.
· Similar to the Euro Stoxx, the trend line connecting the highs since April 2015 comes at 10,700 which seems to be the ideal target for this move higher.
Daily chart
Euro Stoxx Banking Index SX7E (100.54 last) – above 97.63 a significant move higher could occur, risk/reward very attractive
· If one believes in the bullish scenario the euro stoxx bank index offers a very attractive risk/reward.
· The entire move from the July 2015 high to the February 2016 low looks constructive (A,B,C move). If this was the case a significant up move could develop.
· For the bullish case to remain valid the Index should not take out the bottom of the suggested wave 2 which is 93.12. since this level is pretty far from current levels one could use 97.63 which is the May 6th low.
Short S&P 500 Vs Long Euro Stoxx 50 Index
· From an Elliot wave perspective the spread has a 5 wave move higher were wave 1 equals the length of wave 5.
· Bearish divergence on the chart is another sign that a top might be in sight
· This trade might be a very good way to be involved in the market with a hedge –
· The setup is interesting and the so is the risk/reward, a move back to the bottom of wave 4 would argue for a 20% move!
Weekly chart