Before discussing the potential for European markets to outperform, the key question right now is when will the markets bottom out? Also: what ever happened to Turnaround Tuesday?
Well, technically, the day hasn’t ended, so there’s still hope for the bulls.
The markets turned sharply off their lows late in the day on Monday, before resuming lower in overnight trading. But so far today we are yet to any signs of a more meaningful recovery, suggesting Monday’s rebound was driven mainly by short-covering. So, are we going to remain in a more protracted downward trend, or will dip buyers step back in later?
Powell, tech earnings and the economy
Insofar as Wall Street is concerned, there isn’t going to be an awful lot to concentrate on in terms of macroeconomics today, but the Fed is meeting tomorrow. All the focus will be on whether the US central bank and its president will be able to save the markets. He could tone down his hawkishness in light of the big stock market sell-off. But how likely is that? I certainly don’t expect to see too much of a walk back from Powell on the Fed’s hawkish intentions.
Thus, if stocks were to make a comeback, it would have to be because of optimism about the economy or company earnings.
On the latter front, we do have more tech earnings to look forward to, with Microsoft and Texas Instruments to report their results after the bell tonight; Tesla and Intel to follow tomorrow night, and Apple on Thursday. These companies better deliver some positive surprises to at least slow down the tech rout.
European markets could cheer stock market bulls
Meanwhile, optimism about the economic recovery should help some of the other sectors of the stock market. I am leaning more towards Europe, because here the markets have not rallied to the level of craziness that was consistently observed on Wall Street all these years.
European markets have a lot of catching up to do in that regard. What’s more, with the ECB going to keep printing more QE money for longer, this should support the markets relatively more than on Wall Street, and other regions where such support is no longer available. Furthermore, travel restrictions continue to ease as omicron cases decline and more people get double or tripled vaccinated. There is a lot of pent up demand for holidays within Europe. Hopefully, we will see confidence returns and people start going on holidays more often this year. So, I certainly am feeling positive towards the European stock markets compared to Wall Street.
DAX testing massive support area
Speaking of European markets, the DAX is testing a massive area of support here around the 15K zone:
Will the dip buyers once again step in to defend their ground here, given the above macro considerations and the fact that the RSI is at “oversold” levels of <30 on the daily time frame? However, a closing break below this area would nullify the bullish argument until we see another reversal signal at lower levels.
Meanwhile, the major US indices have printed possible reversal signals (hammer candles on daily) but need to see some follow-through:
Source for all charts used in this article: ThinkMarkets and TradingView.com