European Equities: Long-Term Trend Broken
The iShares DJ Stoxx 600 is trading 8% from its 200-DMA, at a new year-low. For the first time since February 2008, its 10-WMA has crossed below its 40-WMA. Along with a majority of countries in Europe, the index remains in a Downtrend.
Defensive sectors like Staple and Utility continue to relatively outperform. Technology, Cyclical, and Capital Equipment have continued to deteriorate further in the recent selloff.
On average, European equities are down 24.7% from their 52-week highs and 76% of stocks are trading below their 200-DMA. Basically, a majority of stocks have broken their long-term trends.
Although we recommend moving into cash, in this report, we are providing a list of stocks that have proven to be more resilient in this environment (see page 3). These stocks share the following characteristics: RS line at new high, RS Rating improving, and positive A/D Rating (money inflow).
II – Short-Term Rebound?
Although we remain negative on European equities, as reflected by the historically low number of stocks on our Focus List, investors may wonder whether the market could bounce back from this recent selloff.
The index is following a pattern similar to February 2018, and among other indicators (MACD, A/D, RSI), the abnormally low number of stocks Breaking Out and Near Pivot suggests a short-term rebound (see page 5, 6, and 7).
By screening for names that display the best fundamental profile with the poorest performance, we came up with a list of stocks (see page 4) that may rebound significantly in the short term if history were to repeat itself.
