After a "Miserable" May (Unless You Were a Bear), Are European Stocks Headed Higher?

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After a "Miserable" May (Unless You Were a Bear), Are European Stocks Headed Higher?
See how our European Financial Forecast identified the March 2012 peak well ahead of the herd -- and learn what we think will happen next.

By Nico Isaac
Wed, 06 Jun 2012 17:15:00 ET

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Check it: Last month, European stock markets endured their steepest decline in 8 months AND fell to their lowest price levels since April 2011.

According to many mainstream experts, the number one reason for the sell-off in European equities was the uncertain economic future shrouding the Continent. Here, a recent news source explains:

"Uncertainty grips European stocks. And, as the old stock market saying goes, uncertainty is worse than war or famine, and it is bound to lead to a lot of volatility."

More often than not, "uncertainty" is a catchphrase used by the mainstream experts to explain away the fact that they didn't see major market turns coming. Case in point: Back in February and March, European equities were enjoying their best year-to-date rise since 1998 AND strongest first-quarter gain since 2006. And, according to the popular pundits, the road ahead was paved in bullish hoof-prints.

Here, the following news items from February and March 2012 set the scene:

"Germany is Back In BoomTerritory" (Wall Street Journal)
"Profits Lag Can't Stop European Stock Rally" (BusinessWeek)
"There is every reason to believe the European market could make up for lost ground... and offers substantial upside potential." (Reuters)

Despite those bullish opinions, European equities turned down from their March peaks in the synchronized and violent sell-off we see today. The mainstream forecasters missed the turn because, as always, they focused on events that exist outside the markets. But while those events may be a whirlwind of mixed doom-vs.-reboom messages, the Elliott wave trend in European markets have been clear.

It was the Elliott wave approach that helped our March 2012 European Financial Forecast foresee the selloff. There, editor Brian Whitmer observed that the FTSE, DAX, CAC and EuroStoxx 50 all had reached a common Fibonacci price target -- the same price target that preceded major turns in the past. Brian presented the evidence to his European Financial Forecast subscribers via the following chart and wrote:

"Today's rally is fading in conjunction with a complete wave pattern, contracting volume, and waning upside momentum. So the best interpretation is that the rally is sputtering to a finish. A [clear] decline will confirm the market's change in direction."

Now, the brand-new June 2012 European Financial Forecast brings the magnitude of the markets' fall since that bearish March forecast into startling focus via the updated chart below:

Uncertainty or no uncertainty -- the trend in European stocks continues to follow its objective Elliott wave script.

Subscribe to EWI's European Financial Forecast Service and get instant, risk-free access to our latest forecasts for Europe.

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Tags: brian whitmer, CAC40, DAX, euro stoxx 50, europe, European debt crisis, FTSE, fundamental analysis, volatility

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