Gavekal Capital: Technically Speaking: Europe

Friday, April 4, 2014

Technically Speaking: Europe

Regular blog readers are familiar with our use of various technical indicators related to the markets. While we do not rely on any single measure in forming opinions, they help give us a broad perspective on market activity over a variety of geographical areas and time slices. The following is a brief review of the technical picture in Europe today, touching on various examples of performance, breadth, and valuation.

As mentioned earlier this week, individual stock performance across all MSCI regions seems to be struggling a bit--even as the indices themselves push to new highs:

The 200 day advance/decline ratio for MSCI Europe remains at low levels, indicating that ~75% of stocks in this group were up over the last 200 days while the other 25% were down:

Breadth of participation has been generally strong for quite some time now, with the Energy, Consumer Staples, and Health Care sectors lagging a bit:

New 20-day highs are easier to come by than new 200-day highs, led by constituents in the Energy and Financials sectors:

Net positive price change days have diminished, especially since the beginning of the year:

Turning to valuations, 70% of stocks in MSCI Europe are above their five-year average P/CF. In all but one sector (Energy), at least 60%--and up to 87%--of constituents exceed that measure:

The bottom line: MSCI Europe looks pretty extended on a technical basis-- with a few cracks beginning to surface?

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Gavekal Capital is a US registered investment advisory firm that manages the Gavekal Knowledge Leaders Strategy. Knowledge Leaders are a group of the world’s leading innovators with deep reservoirs of intangible capital. These companies often possess competitive advantages such as strong brand, proprietary knowledge or a unique distribution mechanism. Knowledge Leaders are largely service-based and advanced manufacturing businesses, often operating globally. Gavekal Capital seeks to identify the world’s leading knowledge companies through a proprietary process that analyzes corporate knowledge investments.
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