MorningWord 11/23/12: Euro Stoxx Free Ranging

by Dan November 23, 2012 9:30 am • Commentary

MorningWord 11/23/12:  First things first, we sincerely hope that you had a nice Thanksgiving with family and friends, and if yours is anything like mine it is not a one day affair, and stamina will become a key personal theme over the next 24-48 hours!  I am back in my hometown of Syracuse, New York visiting family, and for some odd reason this skit from Saturday Night Live last week has struck a cord:

Funny business out of the way, equity markets the world over have had a week to be Thankful for, with much of the positive performance centered around Monday’s melt-up in the U.S.   With the U.S. markets trading with one eye open since Wednesday’s open, I think it makes sense to take a quick look at European equities that after closing at 2 month lows just a week ago, Europe’s Euro Stoxx 50 is up about 4.5%, now only 2.5% from the Sept Highs.  Not bad action on the surface (especially on a day that saw better than expected Business Confidence data in Germany), but for traders who were playing for a near-term bounce it may be a tough press for gains without incrementally positive news.   

With just 5 weeks left in the year, the trading ranges may be in, as investors struggle with their perennial seasonal desire to mark their books and chase performance a tad with a this year’s little wrinkle of booking large gains (where they have them) in front of increased capital gains taxes in 2013.  This game of tug of war will likely keep things relatively contained.

Taking a look at the 1 yr chart of Euro Stoxx 50 (below), it becomes increasingly apparent that a move above or below the support/resistance channel in place for most of the year (excluding the summer), will only be caused by some fairly significant news, which at this point is more likely to lean to the positive side on some sort of compromise on our “fiscal cliff”.


[caption id="attachment_19727" align="aligncenter" width="490" caption="Euro Stoxx50 1 Yr chart from Bloomberg"][/caption]


Over the course of my career, I have generally done my best to not make significant trading/investing decisions on days/weeks like this,  but often taking a closer than usual look at the price action around the globe to try to get a sense for which tail is wagging the dog.  Low volume Holiday sessions can provide trading opportunities, but not likely to signal a trend.