I guess there is not a single person on earth who doesn’t know that since 2008, the European Union (EU) has had do deal with many struggles. It’s not just that there is a refugee crisis hitting the increasingly political Union as of now, there is also a financial crisis going on – still.
If you were to go around the streets asking people if what has been going on with Greece in 2015 is different from what has happened in 2008/2009, you would most likely get a positive answer. People really have come to believe, that QE and rescue packages xyz actually helped solve the financial crisis, that had initially started in 2008/09. They do not realize that budgets of the strongest member states suffer under many different programs trying to save the economies of the countries especially located in the South of the continent. As we all know, it’s not just Greece that has been hit hard, the real GDP of important EU member states is growing only slowly in the past five years, with some even contiously declining. Taking the graph above into account, Greece is suffering the most. Among are many lender states, the Real GDP for other european states is still barely at pre-2008 levels, despite on-going financial aid programs to strengthen the entire EU-economy.
Depending on what economic school you agree with more, you will have your own opinion on whether individual QE programs and other financial-support-oriented aids in time of crisis will solve ongoing, unsolved financial dilemma of the EU or not. Being completely uninformed about these theoretical and fundamental economic perspectives, being a trader in our case, we are simply interested in where we can money next .. therefore, we should have a look at the Eurostoxx Market Index. In my opinion, it reflects nicely, what has been going on in Europe in the last 15 years.
Zooming out to see the whole story of this monthly chart, it becomes clear, as indicated, that this market never again reached the old highs of the dotcom bubble. It didn’t even make it to those levels at around 5500 points anywhere close. Instead, ever since the burst of the bubble, this index has been in a continous downwards trend. Two attempts have been made in the shape of an up-trend to turn around this downwards direction, but prices have failed. Even in the latest up-move from 2000 to 3800, price didn’t seem to be too convinced to follow through on that path. It kept coming back into the moving averages, indicating underlying weakness in this trend. In the same regard, momentum kept on showing a mix of red and green bars, even going below the 0-line a couple of times. Following the fractals – as we follow the market wherever it goes – it becomes clear that the probability of a continuous downmove increases with new down-fractals being formed and taken out. The first seems to be the case now. On the high timeframe of the monthly chart we can see a down-fractal has formed, and prices is now trading in a range, undecided where it should go next. It is very possible, due to the weak nature of the uptrends since 2000, that this down-fractal will be hit and the Eurostoxx will continue down. All QE programs and other aids don’t seem overly effective at this point. Nothing has happened yet of course, but the one who follows the market, sees the current downward potential for 2016. This can change in a jiffy, too, but we go along with the flow.
Zooming in on the last few years of the mentioned 15-year period, we get a better look at yet another failed internal up-move and the following correction. Even though price seemed to break through the high of 3300 in Feb 2015 decisively, the trend that followed the fractal-buy breakout didn’t last too long, still it was profitable. Instead, a heavy correction followed to the downside, reaching very far down – so far as to almost hit the low of the previous internal correction, as indicated in the chart. This is not a good sign for a continuation of the up-trend, since when comparing the two moves, there seems to be no relation at all between the dominating trend (up) and the correction (down). It seems to be vice versa instead, the up-move in this weekly chart is merely part of a 1,5-decade-long downwards direction, that possibly hasn’t ended yet.
This makes the current bracketed market even more interesting. It has already presented us two fractals, a buy- and a sell-fractal. Whichever way the market decides to head out of this sidemove, we will simply follow. This way we will make sure to catch the next big wave that this index might bring forth in 2016.
As a trendfollower you are not dependent on the effectiveness of the financial programs politicans initiate, you buy and sell, whenever the market tells you to buy and sell. There is no analysis, interpretation or second guessing. You just place your orders and the market will take care of the rest.