What Should You Make of This Summer’s Highs in European Stocks?

Hey guys, Brian here. The new issue of the European Financial Forecast is online.

We’ve been pretty adamant all summer that wave patterns are shaping up to make for some pretty dramatic trading this fall. That drama is beginning to unfold.

Now, I want to show you two charts that have really done a good job marking turns in the Stoxx 600. First is the spread between BTPs and Bunds. So, this is Germany and Italy. We’re looking at the 10-year spread. Look how closely the top in this spread marked a bottom in stocks, and look how closely a bottom in the spread marked a top in stocks.

Now in the letter, I’ll get into why this particular spread behaves this way and why we see this relationship, but just know that it has provided very accurate signals as to these turns.

Now, this next chart is the exchange rate between euros and dollars. Again, look how closely now a bottom in the euro coincided with a bottom in stocks and a top in the euro coincided with a top in stocks. In the letter, again, I’ll get into why we think this relationship exists.

In this video, I’m just putting these charts out there because we have good confirming evidence now, both in terms of a currency pair and a credit spread, that kind of paints this picture as to where stocks are headed.

Now, the big question obviously is, what was the significance of this summer’s peak? It was a new all-time high in the DAX. It was a new all-time high in the FTSE. It was a lower peak in the Stoxx 600, lower peak in in the U.S. indexes.

So, you know, is this sell off, is it something temporary? Is it something more significant? That’s the question we’re trying to answer in the letter this month.

So, send me a comment. Let me know your thoughts. Thanks for watching, and I’ll see you again soon.