Despite the rise in the EURO STOXX 50 since mid-2016, it has performed poorly on a relative basis versus the S&P 500 and may be about to fall further behind, according to Ari Wald, Technical Analyst at Oppenheimer.
Wald says the EURO STOXX 50 has broken through January’s support and now looks like it will trade sideways in a range between 3350 and 3550, leading to further underperformance versus the S&P (see Chart 1). Meanwhile, he thinks the S&P will continue to advance, albeit at a slower pace (see Chart 2).
Drilling further into European stocks, Wald points out that the biggest breakdowns have occurred in European safety sectors with high-dividends and bond-like attributes, like Telecoms, whereas he remains positive on cyclical sectors like Industrials (see Chart 3).
Wald thinks a breakdown in Europe may eventually be a warning for global stocks, but in the meantime it confirms his current recommendation to overweight the US versus Europe.