If you could return to May 2012, would you invest your money in Europe or the United States? It may come as a surprise, but Europe is actually outpacing the S&P 500 with returns of 40% and 33% respectively. Headlines continue to beat the negative drum that ‘problems still loom in Europe;’ that may be true, but those problems also might be hiding the strong gains realized in those markets. The markets still look healthy from a technical perspective, and I’m particularly intrigued by the financial shares.
The chart to the right is a basic, weekly price chart of European financial shares going back to March 2012. In hindsight, we can see a double bottom in price from May 2012 to June 2012, and from there a strong bull trend. There have been three consecutive higher lows, and three consecutive higher highs (with a fourth higher high in process right now). Additionally, the 40 week moving average is sloping higher and provided support for the last two declines in prices.
Furthermore, financial shares have really outperformed Europe (and the S&P 500) as they have gained 60% since May 2012. This year is a slightly different story as they have posted only small gains against other Europe shares and are behind the S&P 500. But the relative strength charts seem to show a symmetrical triangle pattern completed against Europe and a bullish breakout of a descending triangle pattern completed against the S&P 500. Maybe there are still more good things to come in this space.
Copyright: circumnavigation / 123RF Stock Photo