European equities have had their fair share of challenges over the past couple of years, but recent strength across major markets is catching the attention of both long-term and short-term investors. Based on the several charts that we'll discuss in the paragraphs below, it appears that the bulls are gearing up to send prices across the region higher.
Vanguard FTSE Europe Index Fund ETF (VGK)
There is little question that the state of global trade discussions has dominated the headlines over the past several months. As this point in time, with the recent easing of tensions between the U.S. and China, perhaps the shift in market sentiment will act as enough of a catalyst to reignite global growth. As you can see on the chart of the Vanguard FTSE Europe Index Fund ETF (VGK) below, the fund has been trading within a confined range since breaking above the resistance of the 200-day moving average back in March, but it has recently started a move higher.
This chart is an interesting example of how the role of a major resistance level will turn to support once it gets broken. Notice how the price has bounced off of its 200-day moving average on each pullback. Watching the price behave so predictably near major technical levels is also one of the main reasons that traders will want to add VGK to their watch lists. Monday's breakout above the upper resistance is a technical sign that the bulls are in control of the momentum and that the triggering of buy-stop orders could be enough to send the price toward the short-term target of $59, which is equal to the height of the pattern added to the entry point.
iShares MSCI Germany ETF (EWG)
For those interested in investing in Europe, looking into the state of the German economy is likely one of the first places to start your analysis. Based on the chart of the iShares MSCI Germany ETF (EWG) shown below, you can see that the price has recently broken above a key level of resistance in a similar fashion as the breakout shown on the chart of VGK above. This strongly correlated pattern is to be expected since Germany is one of most influential economies of Europe, and the two funds share similar holdings such as SAP SE (SAP).
Traders will most likely take note of the proximity of major support levels and use them as guides for determining the placement of buy and stop orders. The bullish crossover between the 50-day and 200-day moving average is also another technical sign that is often used to mark the early stages of a major uptrend.
iShares MSCI Italy Capped ETF (EWI)
Another ETF that will likely capture the attention of active traders over the coming days belongs to the iShares MSCI Italy Capped ETF (EWI). Taking a look at the chart below, you can see that the price is trading near the trendline of an ascending channel pattern.
This level will be expected to provide resistance over the coming days and could lead to a pullback toward the middle of the range, which is where the support of the 50-day and 200-day moving averages will be met. Buying near the long-term averages would offer a better risk-to-reward ratio and would likely create a solid base for an eventual break beyond $28.
The Bottom Line
Despite the geopolitical trade tensions that have dominated the headlines for the past couple months, chart patterns on European equities and the associated markets suggest that prices in this region of the world are poised to move higher.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.