The Euro Stoxx 50 has initially gapped higher to kick off the trading session on Wednesday but then spent a better part of the day falling. After that, the market turned around to reach the 3700 level, but it is obvious that the market is trying to find its footing and its directionality as to where it will go next. Keep in mind that this index will track the entirety of the European Union in general, as there are so many different countries represented.
This brings up an interesting conundrum because there are a lot of moving pieces in the European Union right now, not the least of which would be inflationary concerns but even growth is a major factor. As long as that is going to be the case, you will almost certainly have problems trying to discern which areas of the stock market are going to be more lucrative. This will cause the Euro Stoxx 50 a lot of problems, but luckily, we have a couple of areas that we can pay close attention to for direction.
The €3600 level underneath is an area where we have seen the market bounce from a couple of times, and therefore I think it will continue to be significant support. This is an area that is broken to the downside and almost certainly will open up a move to the €3500 level, and then to the €3400 level where we had bounced from previously. On the upside, the €3800 level is an area that will attract quite a bit of attention, right along with the 50 Day EMA.
We have been in a downtrend for a while, and as a result, I still believe this is a market that is more likely to be a situation where people “fade the rallies” going forward unless something changes quite drastically with the overall risk profile of markets. I do not believe this is very likely, at least not in the near term. Because of this, I think you continue to build a bit of a channel to the downside but keep an eye on any attempt to pick up liquidity by the European Central Bank. That could be an issue later, and if it ends up being one, it could lift stocks. There are a lot of negatives out there right now though, so it is not until we clear the €3800 level that I might be willing to take a crack at this to the upside.
