European Stock Market’s Rally Stalling

European stock market investors had great returns in December of last year. We wrote that the European stock market was ready for a 15 pct rally, on the short to medium term time frame.

Nothing goes up in a straight line, however, so it is no surprise that the Euro Stoxx 50, the leading European stock market index, bumped into resistance. Former support, as indicated with the purple dotted line, is now resistance.

Year-to-date, the European stock market index is down 1.4 percent.

European stock market investors should watch closely the 3100 to 3300 area in the Euro Stoxx 50 index. If the ongoing retracement will be capped in that area it would be good news for European stock bulls.

The monetary policy of ECB boss Mr. Draghi is certainly supportive for the stock market. Moreover, a strong dollar would put pressure on the Euro, which is another driver for the European stock market.

The New York Times came out with a modest view on the ECB’s monetary policy decision of today. It concluded with the words of Mr. Draghi that “The recovery is resilient.”

Europe is facing a lot of challenges, and, fundamentally, there are reasons for concern. However, for investors the most important indicator to watch is what is happening in the market in terms of supply/demand. And that picture, for now, looks quite OK, at least short to medium term, even with all the challenges in Europe.

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