© 2019 by Greg Schnell


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Remember How Bad Things Are In Europe As They Hit 52-Week Highs

The news media will tell you that things in Europe are awful. Germany is probably in a recession, and Brexit discussions are causing problems all across Europe. But the technical view says the big investors are buying the stocks as both Germany and France made new highs.

Germany made new 52-week highs amidst a manufacturing recession and starting trade talks with the USA. The chart below has a 5-year time line. With price taking out the June 2019 high, we have a series of higher highs and higher lows.

There is a real interesting trend line on the PPO indicator. The peak on the PPO (Percentage Price Oscillator) indicator occurred in 2015. Each subsequent rally has had less momentum, resulting in lower highs on the PPO. Throughout the summer, I expected Germany to break lower, but now it has made new highs. Charts show what the money is doing.

Germany is breaking to a new high and that is bullish. This long-term trend in momentum has been a big downtrend for years with rallies buried in it. Over the next few months, we’ll find out if Germany can break this downtrend in momentum. That would be an important long term bullish trend change.

Information about the PPO indicator: - The percentage price oscillator keeps track of momentum and can be compared over time with price at different levels. The MACD indicator (not shown) is a more commonly used momentum indicator but can’t be compared over time because it uses price change, not percentage change. What that means is that as price goes higher, the waves on the MACD go higher. This is one of the benefits of using the PPO instead. It can compare percentage moves over time regardless of the price level.

France has an even more bullish setup. The chart below is a 15-year chart and shows France making a new 11-year high this week! The chart is a little too squished for us to do any real analysis on, but it is clear that this is very bullish. Let’s gather some larger scale ideas, then move to a zoomed in version of the chart.

France has made a series of higher highs and higher lows on a larger scale since 2009. As momentum has slowed on the PPO over the last five years, the change in the level of new highs has been relatively small (400 points), compared to the 2012-2015 period (1680 points).

Zooming in on the last five years, the chart has made numerous surges but each time stalls out near the solid red line. We also have the down slope in momentum on the PPO. Just for reference, the way I think about the momentum line is a friction level. If we can meaningfully break above the downtrend in momentum, perhaps we are starting the next big bullish push for Europe. It will be something to watch in the 4th quarter, but for now it is very bullish that we are breaking out to new highs.

Good trading, Greg Schnell, CMT, MFTA