Something has begun in last few days in Europe. Price action in Eurostoxx50 index has been really strong both outright and relative to SP500.
Stoxx50/SPX spread - weekly (left panel): - Spread rallied quite a lot since June, crossed back above Kijun Sen. This was remarkable, as the value had been holding below Kijun Sen since July/2015! From the October top, we saw retracement slightly below Kijun Sen again. Last week, before Italian referendum market still looked to continue bearish. But this week we have a remarkable signal! -> Price spikes back above Kijun, and Heikin-Ashi shows a clear reversal. - Smoothed haDelta+ indicator confirms with a cross up. MACD shows a bearish failure and likely to continue up. EWO ticks higher too.
So far it is just a very early signal, but looks like the underperformance of Stoxx50 relative to SPX may come to an end as the spread could not make a lower low.
As a strategy I'd suggest buying Stoxx50 on dips vs selling SPX. You don't have to rush, probably there will be some dips before the Stoxx50 weekly chart confirms a bullish breakout. In other words, if you don't trade the spread, but you look to buy equities, Europe can be a better opportunity, while on bearish side SPX has to be picked (if a sell signal confirms)
Stoxx50 - Weekly (right panel): - Ichimoku is still neutral as price is located in the Kumo cloud, but watch out for forward Senkou B! The 52 weeks average has dropped to 3000, while Senkou A (average of Tenkan and Kijun) started to turn up. This makes some initial bullish bias in the thinner forward Kumo. Chikou Span is trying to cross above past candles too. Tenkan/Kijun has been weak bullish since August, and all selling attempts were blocked by the weekly Kijun Sen. The supports of this market are very clear now: 3000 / 2955 / 2900 - Heikin-Ashi signal is bullish, haDelta made a bullish cross above zero. EWO and MACD has initial bullish bias too. Until we get some more bullish confirmation, try to buy retracements to 3080 rather than rusing into longs here.
評論
IvanLabrie
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Europe caught up to SPX in nominal terms, but if you weight the currency risk, EURUSD's beating makes it still far below SPX.
If you pit both vs say inflation or gold, it would be interesting but seems like US is still the place to go.
@IvanLabrie, this time I disagree. In US the monetary conditions will tighten either by FED or by the market via selling more bonds and pushing yields higher. Here in Europe I think monetary conditions will tighten too, but a lot less. ECB will cut back QE and will try to normalize fron end of curve, setting yields above zero again. This would push EURUSD higher short term, and would be also very good for European banking sector's margins. Stoxx50 has quite some bank exposure, that's why the trade could work nicely, even if QE is disappearing. In fact QE is very counterproductive. This is a big mistakes by perma bears to short equities just because of this reason! If look for a bearish trade based on monetary tightenning, first of all the super expensive bonds have to be sold! In Europe there is no equity bubble. Not at all. But look at this sht German curve, there is the BUBBLE in the BOND market. So sell Schatz and Bobl, buy Stoxx50 and DAX vs selling SPX makes sense to me.
Other fundamental reason is that by fwd EPS basis US is extremely expensive, while European equities are very cheap.
IvanLabrie
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@Kumowizard, but you don't factor other risks, currency risk, political risk, banking system health risks...I'll stay in the US :p
I see your point though, the crux is: you think Euro will strengthten, I think it won't and we have a massive influx of money coming to the US, dollar boost from rate hike can only increase it further.
Let's see how it goes going into FOMC and during next year.
IvanLabrie
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Another thing, I don't buy the index, in general, but focus on mid caps, vs large caps in the US market. There's a lot of growth in undervalued companies waiting to be exploited.
Cheers.
Kumowizard
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@IvanLabrie, can be, but I am running a big investment business (not just my private), where I can not go down to these details. I trade macro views and major instruments only. Have a lot of work with FX swaps, hedging, financial engineering, etc. too.
If you pit both vs say inflation or gold, it would be interesting but seems like US is still the place to go.