Can European Stocks Lead the US Market Higher

The European Central Bank's new chief Mario Draghi gestures during his first press conference at the ECB in Frankfurt/M., western Germany, on November 3, 2011. The European Central Bank's decision to cut its key interest rates in a surprise move was "unanimous", the 64-year-old Italian said. Draghi's first few days as ECB president have certainly been a baptism of fire. The 17-nation eurozone is back in deep crisis following the shock call by Greece for a national referendum on a debt rescue reached with huge difficulty only last week. Draghi took over at the helm of the ECB from Jean-Claude Trichet.     AFP PHOTO / DANIEL ROLAND (Photo credit should read DANIEL ROLAND/AFP/Getty Images)

Don’t count Europe out so fast! Yes the Euro is showing some weakness and the UK is creating some volatility as the Brexit gets worked out, but there are some positive signs in the European stock market. Would it be ironic if the next leg higher in world markets was led by the European markets?

The chart below shows the Euro Stoxx 50 Index, the blue chip index of all European stocks. I know it looks like it has just moved sideways for the year, because it has. The index is rising against 10 month resistance and may stall again, but a push higher through would be a very bullish signal. But on the chart there are 5 things to focus on that can tell the story. The first is in that yellow circle, a Golden Cross. The Golden Cross occurs when the 50 day SMA crosses up through the 200 day SMA.

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It is a bullish sign, with short term smoothed pricing rising. It also brings to light that the index has been over its 200 day SMA since mid September. The last time it spent any significant time over that bullish arbiter was prior to August 2015. Next is the series of higher lows that have occurred since the Brexit low at the end of June. The tightening against resistance builds an ascending triangle pattern and a break higher would look for a 200 point move higher.

The RSI at the top of the page has been bouncing in no man’s land, between 40 and 60. The latest leg is to the upside and it sits at 60. A push over that would add to the bullish case. The MACD at the bottom of the chart has already rounded out of a bottom and is moving higher. Confirmation of more upside comes on a move over 3100 and gains strength over the April high at 3160.

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