Brian Whitmer is the editor of Elliott Wave International's European Financial Forecast.
With the Portuguese government in chaos and the specter of debt downgrades in Spain, I ask Brian what's ahead for the continent's markets, debt crisis and social trends.
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Could you characterize the divergence which has been taking place between "core" and "peripheral" Europe?
It's important to realize that peripheral European markets – Ireland, Spain, Portugal, Italy, Greece -- recorded their countertrend peaks more than a year ago. Even the CAC 40 and Eurostoxx 50 -- two of Europe's most widely followed averages -- sit no higher today than they did in late 2009, 18 months ago. In other words, equity market gains in Europe in 2010 were mostly isolated to German and British shares. Wave patterns and historically high sentiment suggest that even these two holdouts are about to play catch-up in a big way.
So, you think there will be a "second act" to the European debt crisis?
I'd describe it as more of an escalation. But, yes, the big questions for me remain: "Is the peripheral debt crisis an anomaly? Or, is it providing a warning to 'core' Europe?" I think that levitating markets have bought the region some time. But if stocks are reaching the long-term peak we foresee, Europe's debt crisis should soon take a dramatic turn for the worse.
"European Bourses in 2011: Is a Tipping Point Near?" is a recent webinar that's now available to subscribers as a recording. What can you tell us about the maturity of the rallies in major European bourses?
In April 2009, EFF forecasted a large-degree market bottom that would "stand awhile." The rally petered out in late 2009 or early 2010 across much of the continent, but British and German shares held up longer and carried higher than we originally anticipated. Here, too, however, the corrective price action since March 2009 looks very mature. I did the webinar for subscribers in early February to lay out the evidence for a trend change. Markets reversed strongly since then, so we're closely watching the structure of the decline for clues.
What is European investor sentiment telling you?
Near term, the gauges we follow have receded somewhat from the extraordinary optimism that persisted in early February. But the public's longer term attachment to stocks is strong as ever. So the case for a contrarian standpoint is solid.
What significant social trends do you see developing in Europe?
There's almost too many to keep track of. Politically, I discussed the downfall of Fianna Fàil last month, the party that has ruled Ireland since the 1920s. Portugal's government has just collapsed. I've been researching emigration statistics in Ireland and peripheral Europe, and some of the data shows multi-decade extremes. At the same time, the conflict in North Africa is intensifying the anti-immigrant sentiment that has been growing in Europe for years. These two opposing forces are a recipe for tension that will only increase if the bear market returns. If our long-term wave counts are correct, the pattern will join with some of the most culturally significant events in Europe for at least a century.
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Read more of Brian's fresh insights and on-going analysis in the current European Financial Forecast. You can also receive the European Short Term Update (in-depth coverage of key European markets 3 times a week), plus The Elliott Wave Theorist (EWI's signature publication) in one great package. It's called the European Financial Forecast Service -- and it's completely risk-free for 30 days.