Despite the negativity surrounding the European debt crises, the SOXX 50 index (which covers the most influential 50 stocks from 12 Eurozone countries) is showing an encouraging technical profile. The index is currently bumping up against a significant level of overhead resistance of around 2600—see my green horizontal line on the chart. Its moved above its 200 day and 50 day MA’s. Both MA’s are flat at this time.
Longer term, I am quite skeptical about Europe. The OECD (Organization for Economic Cooperation & Development) recently warned that the world’s major economies could all go back into recession if euro-zone and US policy makers fail to tackle their fiscal crises. Europe has too many independently moving parts to easily allow for a focused effort towards resolution. If you think its a challenge to get two political parties within a capitalistically driven economy such as the U.S. to agree on a resolution to the fiscal cliff–try getting multiple socialistically inclined countries, each with opposing political parties, to agree on anything.
However, speaking as a Technical Analyst, I do believe that a break through the 2600 level for the SOXX index will target 3000 (a 15% + upside potential) in the short term. Any positive news out of Greece (the current wall of worry) may push the SOXX at least temporarily higher until the next inevitable crises crops up. This morning, I note some “slowing of the slowing” in European PMI, along with some news out of Spain that markets are considering encouraging. This is not to be considered a sign of imminent turnaround yet, according to Thomson Reuters Market Overview. But it may be the catalyst for an index breakout that gives the market some near termed legs.
Given the influence of their problems on North American economies, I remain skeptical about world stock market upside over the coming year. However, there may be bullish short termed trading opportunities both here and in Europe. Traders with an eye on the SOXX 50 may be able to capitalize on a very profitable breakout, should it occur. Key an eye on this index for such an opportunity.