3 Charts That Suggest European Stocks Are Headed Lower

The global markets have been hit hard in 2020 on fear of the COVID-19 pandemic. Early in the outbreak, European countries were some of the hardest hit. Like many markets around the globe, the sharp decline in asset prices was met with a bounce higher, which has since triggered much discussion around whether a rise in momentum is likely to continue over the weeks or months ahead.

Based on the charts discussed below, nearby resistance levels could be enough of a concern for some bullish traders to remain on the sidelines. On the other hand, some active traders may even start betting against the recent uptick and place sell orders near resistance in anticipation of a move lower.

iShares Europe ETF (IEV)

Many active traders looking to get a sense of where European equity markets are headed often turn to popular exchange-traded products such as the iShares Europe ETF (IEV). As you can see below, the price of the fund has rebounded sharply from the March lows and is currently nearing the combined resistance of the horizontal trendline and the 200-day moving average.

Followers of technical analysis will likely bet against a significant move higher until the price of the fund is able to make several consecutive closes above $41.96. From a risk management perspective, the risk/reward of a trade is currently sitting in favor of the bears, and as it stands now, it could be early for traders to enter a bet on a move higher.

Germany

As the country is the leader of the European equity markets, many active traders will naturally turn their attention to Germany. As you can see from the chart of the iShares MSCI Germany ETF (EWG), the price of the fund is trading near the resistance of the influential 200-day moving average.

The long-term moving average is commonly used by traders for determining the direction of the long-term trend, and the recent tilt downward suggests that we are in the early stages of a prolonged downtrend. From a risk management perspective, traders will most likely bet on a bounce off of the nearby support and place stop-loss orders above the nearby trendline in case the recent momentum is able to continue.

France

Another popular market for traders interested in buying into European equities is France. As you can see from the chart of the iShares MSCI France ETF (EWQ) below, the price has several points to go before reaching the combined resistance of the horizontal trendline and the 50-day moving average.

However, the combined resistance in close proximity suggests that there is limited upside potential remaining before the bulls potentially lose their conviction. Some bullish traders may choose to trade around the space remaining between the current level and the long-term resistance, but it would likely be suggested only for those with plenty of experience.

The Bottom Line

Strong bounces from the March lows have many active traders around the world talking about whether the recent upward momentum in European equities will be able to continue. Based on the charts discussed above, nearby resistance could be enough of a reason for some bulls to remain on the sidelines since it suggests that the long-term trend is still in the favor of the bears.

At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.