Below is a 3-month chart of the British FTSE-100, one of Europe's major stock indexes:
Notice that, despite the fact that in November the index suffered another significant decline, its overall performance since late September-early October has essentially been flat, with almost zero net progress in either direction.
With all the doom and gloom in the European financial headlines, you might expect stocks to be falling like a rock. And they have – on some days. But then, as the chart above demonstrates, they would make up for the losses, resulting in the sideways pattern we see above.
If you think that's interesting, you're not alone. The editor of EWI's monthly European Financial Forecast (EFF), Tom Denham, observes on p. 2 of the just-published, December issue (online now):
"Trading ranges provide rest, and like tired people, markets need to rest after the strenuous activity of falling sharply."
Tom Denham also observes that back in 1987, the FTSE-100 entered a similar trading range after it had plunged 38%. Back then, "The performance proved to be a base-building phase, and stocks rallied sharply thereafter." The December EFF illustrates this fact with the following chart on p. 2:
Will the October-November period of sideways trading in the FTSE again prove to be "base-building" before a sharp rally? Tom Denham answers this question on pp. 3-4 of the December EFF (online now).
And on pp. 5-10, you also get EWI's latest longer-term forecast for the following European markets:
- Germany's DAX stock index
- France's CAC40
- The Netherlands' AEX
- Switzerland's SMI
- Spain's IBEX 35
- Italy's MIB 30
- Dow Jones Euro Stoxx 50
- Russia's RTS
- Eastern Europe's CECE Overall Traded Index: Hungary, Poland, Czech and Slovakia.
- PLUS, a new report, "Russia: From Buffed…To Rebuffed" by EWI's Alan Hall. Excerpt: "Overall, Russia still tends towards its historical feeling of being encircled and besieged." Read what that might imply for the country's future.