Europe has come a really long way in just a short while
The Euro STOXX 50, an index of the largest blue-chip companies in the Eurozone, is up about 10% in less than a month.
I remember a time not long ago when I was worrying about the potential tops that had formed in Europe.
They never completed. Instead, we hooked higher like we’ve seen so many times before.
This is what the STOXX 50 $FEZ chart looked like coming into the year (in USD).
What a nasty distribution pattern, right?
But here's what it looks like today.
Buyers showed up and defended this key support zone again in December.
For now this top is nothing like the top from the prior cycle. It's likely just another continuation pattern. It completes on a breakout above 54.
So what is next for Europe?
Considering the messy, rangebound action for the past 10 months, you could make the argument this rally should be faded.
But take a look at the lower pane above. Assets are supposed to get overbought in uptrends and oversold in downtrends.
FEZ just hit overbought. And better yet, it hasn't been oversold since Q4 2023. The momentum profile here suggests this is still an uptrend.
It also just registered a bullish weekly momentum cross (not shown).
Another thing that supports a new leg higher from European stocks is the performance of US stocks.
Of course, divergences will occur but developed equity markets tend to move together over the long-term. Their primary trends should agree. This means Europe probably has some catching up to do.
One last reason I think the rally in Europe can extend further is the breakouts in the local indexes in recent days.
Here is JC's chart of the STOXX 50 in local:
When we remove the impact of USD, these stocks look even better. These new all-time highs bode well for a breakout in FEZ.
And if an index of the largest Eurozone companies is breaking out, we should have a growing list of individual country ETFs and ADRs that we want to buy.
Finding these leaders will offer much better opportunities than using the index as a vehicle. We plan to do it when the time comes. I think we're getting close.
We'll be adding some international exposure to our Breakout Multiplier portfolio in the coming days and weeks. Sign up and join the team!
