We are getting closer to the end of the year. And after three months with the Euro Stoxx rising, some see reasons to have a correction.
At the time we wrote this article on November 16, the Euro Stoxx index was at 3.711, 61 which is a great resistance that it already hit on October 2017 and almost did it in May 2017 and January 2018.
In this position, it is logical to think that even if the index eventually breaks the resistance, it will take some time and effort to do it.
Theoretically, there are two times to buy, once the asset breaks a resistance or once the asset goes backwards up to the support. We cannot predict what will happen next, but we have some clues that make us think than even if first there is a correction, the index eventually will break the resistance. Thus, we would say that this correction could be a buying opportunity.
We think that because important European indexes like CAC 40 (France), Dax 30 (Germany), and FTSE MIB (Italy) seem to be in really good shape.
CAC 40
In the last half of October, the French index left a two-years lasting sideways leaving by the up side. Two years is a long time, and this makes us comfortable with the signal.
Even if it seems logical to us to have a correction in the next weeks, we expect it to rise above today’s level after that.
DAX 30
Germany’s index has not broken the two-year resistance yet, but it is close to doing it. We had a double top in October 2017 and January 2018, and it seems that it is now ready to try to surpass them.
The last resistance would be 13 600. If the DAX breaks it this time, it will likely do it with a high overbought. Since the resistance is important, we expect the correction first. But in principle, we would think this is a good opportunity to buy and see if they are able to surpass the top. Even if they are not, we should reach a good profit once it attacks the top level again. It will be a matter to act quickly and sell in case we see that the index cannot break the resistance.
FTSE MIB
FTSE MIB had its top on the first week of May 2018. Then, it had a dramatic correction until December 2018. But this year it is showing a great strength, actually being the best index in Europe this year.
It is similar to Germany. If it attacks the top now, it will enter in an overbought area which will make a correction likely. However, when something shows that strength, it is likely to go back to the top reached in the overbought moment. So we have the same idea. If such correction happens, something that we expect before December, it could be worth it to give it a try.
Final Considerations
We do our analysis with total return charts, meaning that the dividend is incorporated into the price.
Remember that we do not give investment advice. We share our view of the market, and it could be very wrong. We just hope that it helps you notice some insights so that you can make your own analysis for yourself. If you want advice, ask your financial adviser.