The Euro Stoxx 50 is once in price discovery around the 4,200 level as the index trades at new all-time highs with breakouts in German DAX and the CAC40 propelling the index higher.
Bullish sentiment from the infrastructure bill is helping give the latest rally in stocks a shot in the arm. Typically, when the DJIA, S&P 500, and Nasdaq are all in rally mode European stocks move higher in tandem.
Other factors are also boosting the Euro Stoxx 50, such as last Friday’s strong jobs number, and a weaker euro currency, which tends to significantly help European manufacturing economies such as German, Italy, Switzerland, and France.
The Euro Stoxx 50 is comprised of leading European stocks and has a particularly heavy weighting of French and German stocks. With both the German DAX and the CAC 40 at all-time highs, it is likely to be further bullish for the Euro50.
Technical analysis shows that a bullish inverted head and shoulders pattern is now in play and is projection further strong gains. These types of patterns are highly reliable during bullish trends.
It is also noteworthy that negative sentiment towards the Euro Stoxx50 is extremely high now. Typically, retail traders have poor market timing and lean against the prevailing market trends. This is why I tend to believe that the Euro Stoxx 50 will continue to head higher while sentiment towards the index remains extremely negative
Looking at the ActivTrades Market Sentiment some 88% of traders are bearish towards the Euro Stoxx 50, despite the index continuing to hit new all-time highs. Bearish sentiment is actually increasing while the index is moving higher, this is a very bullish sign.
Euro Stoxx 50 Short-Term Technical Analysis
The four-hour time frame shows that a bullish breakout from an inverted head and shoulders pattern is underway and is projecting an upcoming rally towards the 4,250 level for the Euro Stoxx 50.
According to technical analysis buying price dips towards neckline support, around the 4,100 or 4,050 levels could be the best strategy in the short-term, in expectation of further upside towards 4,250.
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Euro Stoxx 50 Medium-Term Technical Analysis
Looking at the higher time frames the daily chart continues to show plenty of scope for upside, as the Euro Stoxx 50 has invalidated a huge head and shoulders pattern after moving above the 3,850 level.
As long as the price trades above key support, around the 3,850 level, we are likely to see the index gravitate towards the 5,000 level, and possibly the 5,500 level over the long term.
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