On the complex European stock market, bulls and bears – bulls and bears, as they are known in market jargon – are fighting an intense short-term battle. The outcome of this confrontation will be key to discerning whether we will attend the long-awaited Christmas Rally or, on the contrary, we will face a final stretch of the year and the beginning of 2025 that could be dyed red. In the worst scenario, we would be facing falls of 10-15% in the EuroStoxx 50, which would return the main European reference to levels from a year ago.
To anticipate, it is crucial to focus on the support zone marked by the August lows in the EuroStoxx 50 Total Return, an index that incorporates the impact of dividends and which, together with the German DAX 40, is currently the most reliable compass to follow the evolution of the stock markets of the Old Continent.
Specifically, I am talking about the 10,900 points of the SX5R, a level that acts as a confirmation line for a possible bearish reversal pattern known as a double top. If this pattern were confirmed, the minimum drop target, resulting from projecting its amplitude, would be 10% below, but I am talking about maximum falls of 15% since if it loses support I could not even rule out a decline towards levels that would represent a 38.20% Fibonacci correction of the entire rise that European stock markets have experienced since the 2020 lows.
Operational strategy for critical support
Operationally, I suggest managing a stop weekly in the 10,900 pointsmeaning we would only execute sales if that level is lost by the close of a Friday. In case the market approaches the August lows without breaking them, it doesn’t seem like a bad idea to buy the European stock market again around the 10,900/11,000 pointssince they offer an excellent risk-return equation.
This same week, the EuroStoxx 50 Total Return marked a low of 11,053 points, just 1.3% from that key support. In this context, it would be ideal for the market to threaten to break that level and then execute a reversal, a technical figure that usually marks significant turns, especially if an upward gap appears in that turn. If it happens, We would be faced with an unbeatable opportunity to position ourselves upwards: The risk of buying in that area would be minimal compared to the potential reward.
The first bullish objective would be at the annual highs, located 10% away. Exceeding it would open the door to new increases, possibly of at least another 10%. In total, we could be talking about potential increases of between 10% and 20% if the support of 10,900 points remains firm.
Time to act, with caution
Therefore, if you ask me, I will tell you that now is more the time to buy than to sell, always keeping in mind that if critical supports are lost we will have to retreat, go to winter quarters. The key is to be disciplined and not lose sight of these strategic levels.
The 10% rule in the US
On the other side of the Atlantic, those who followed my recommendations two weeks ago have navigated the recent declines with ease. Reducing exposure by 25% of the invested capital – that is, selling 25,000 euros out of every 100,000 – has given them liquidity to take advantage of opportunities. Now, that ammunition You can head towards Europe or be reserved until the North American indices decline by 10% since its last peak, a rule that worked very well last August.
In summary, although the European market is facing a decisive moment, the scenario continues to offer attractive opportunities if we manage risks precisely. The key to a possible Christmas rally lies in the hands of the support of the 10,900 EuroStoxx 50 Total Return points. It will depend on whether we close the year with optimism or face a more challenging start to 2025.
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