European stock markets have an amazing setup hence our bullish European stocks outlook for 2018.
There is a lot of talk in financial media about the outlook of Europe. Of course stories sell well once they are ‘gloomy-and-doomy’. But this has no value at all for investors.
Moreover, the more financial media stories investors read the worse it is because there is always a bullish version and always a bearish version somewhere to find. Smart investors turn this small set of relevant data points and charts, rather than reading one article after another.
Case in point:
- European banks rally, leading stocks to 1-month closing high at MarketWatch
- Europe: Stocks rally after Brexit, banking rules deals at Business Times
- European stocks dragged to 3-week low by Catalonia, China concerns at MarketWatch
- European Stocks Slide With FTSE 100 as May Calls for Election at Bloomberg
European stock market outlook 2018 – what really matters
During summer time we sent out this alert to our subscribers: Alert – European Markets Start Trending. That is exactly the point in time when a tactical fall got broken to the upside.
Our point of view was simple: German interest rates are a leading indicator for European stocks. That is what we are watching in 2018. The long term German interest rates chart shows a retracement now after a very strong breakout. The 0.30 points level in 10-year German yields is an important one to watch. If this provides the support it shows on the chart then we would become very bullish in European stocks in 2018. Especially banking stocks in Europe will be outperformers.
In case European interest rates go lower from here, we see European stocks struggling in 2018.
The long term Eurostoxx 600 chart has an amazing setup. A triple top over the last 10 years got tested this year, even twice. There are two things about this pattern.
First, this very long term triangle pattern is incredibly powerful. Markets are moving to the apex of the triangle. A strong move will result any time soon!
Second, this triple top takes place right at a time when German interest rates are retracing towards a tactical support level.
Let’s get things straight: if (and that is a big IF) German interest rates are not wildly bullish, say neutral with a bullish or bearish bias, we believe that European stocks could do well in 2018. In case German interest rates start rising from here we believe the European stocks outlook for 2018 is strongly bullish.