Sunday, August 28, 2011

European indices: crack under severe bear attacks

We keep reading and hearing about the poor economic growth and sovereign debt problems in Europe. One would expect the stock markets to perform badly. But through the past 12 months, most European indices have performed remarkably well – while the Indian stock market has been in a 10 months long down trend despite much better economic growth.

Things have changed of late. Even as our stock indices continue to struggle in bear markets, European indices have cracked under severe bear attacks. Most have dropped below their 2010 lows. Some have slipped to 2 year lows. The charts will tell the story:

Austria ATX


Austria’s ATX index peaked at 3000 back in Feb ‘11 and started correcting. The ‘death cross’ in Jul ‘11 confirmed a bear market. A vertical fall has dropped the index to a 2 year low in Aug ‘11. A ‘dead cat bounce’ has been followed by more selling. The index has lost more than 30% from its peak.

France CAC 40


France’s CAC 40 index has fared marginally better than Austria’s index. It dropped just under 30% from its peak, but also to a 2 year low.

Germany DAX


Germany’s DAX index had been a spectacular performer, till the first big crack appeared in Mar ‘11. The index went on to touch a peak of 7500 in May ‘11. A period of sideways consolidation concluded with a vertical drop to the Feb ‘10 low. The index has lost about 28% from its peak.

Holland AEX


Holland’s AEX index has fallen to a 2 year low, losing about 27% from its Feb ‘11 peak. The ‘death cross’ confirmed a bear market in Jun ‘11, so the recent crash should not have come as a big surprise.

Norway OSEAX


Norway’s OSEAX index has corrected more than 25% from its Mar ‘11 peak, but found support near its Aug ‘10 low. It is trying to consolidate before resuming its down move.



Sweden’s OMXSPI index has also corrected more than 25% from a double-top at 375 to levels last seen in Oct ‘09.

Switzerland SMI


Despite the strength of the Swiss franc, Switzerland’s SMI index has been correcting since hitting a peak near 7000 back in Apr ‘10. More than a year’s sideways consolidation within a rectangle culminated in the ‘death cross’ in Jun ‘11.

Some experts on business TV channels have opined that FIIs will have no choice but to buy in India and other emerging markets - to chase growth that is lacking in their home markets. I have my doubts. FIIs would be less interested in chasing growth. Their main job will be to protect capital. That means booking profits in emerging markets to cover up the losses in their home markets. Their selling in India may continue till the global economy starts showing clear signs of recovery.


Karan Kamdar said...

hey there is almost a vertical drop on most of these charts. if you could tell me the period when this drop happened i will be very delighted. Just rough months will do cause tge dates stop after may 11. thanks in advabce...

Subhankar said...

If you look very closely at the charts, Karan, you will notice little dots appearing after May '11 - marking the months of Jun '11, Jul '11 and Aug '11.

The vertical drops happened from mid-July '11 to early Aug '11.