Is A Plunge Coming in Europe’s Blue Chip Stock Market?

The Dow Jones Euro Stoxx 50 Index is an index of 50 blue chip stocks throughout Europe, and is Europe’s equivalent of the U.S. Dow 30 Industrials Index. It is a key barometer of coming broad stock market price moves and economic activity. This weekend, the Stoxx 50 is completing a well-defined, textbook, large Rising Bearish Wedge, which warns that a strong stock market plunge is soon coming to Europe. Further, there is a second Bearish pattern, a Megaphone or Broadening Symmetrical Wedge Topping pattern, one I dub the Jaws of Death pattern, which also is nearing completion this weekend, also warning Europe’s stock market is in imminent danger of a sudden and powerful decline. That is two independent patterns providing the same warning about the same major stock index, both at the same stage of development, close to completion.

It is difficult to know what specific news events will trigger this coming decline. It could be a convergence of several events, some political, some economic, some environmental. There is a major treaty negotiation close at hand between all the nations of the world and Iran, with the nation Israel very unhappy with the deal according to an article posted at the online Wall Street Journal Friday, November 8^th. Could that play into a trigger event causing this coming stock market decline in Europe? That is just speculation, however the patterns we present this weekend are not speculation, they are reliable patterns, the accumulation of all knowledge by everyone about Europe’s top 50 companies, an accumulation of market psychology that will lead to a powerful sell-off, possible starting sometime over the next 6 months.

Here are the charts:

Europe’s Dow 50 Stock Average, the STOX5E, completed its Grand Supercycle degree wave {III} top in 2000. Since then we have witnessed the start of Grand Supercycle Degree wave {IV} down in Europe with the worst yet to come, which is interesting since it could be a glimpse into how the Grand Supercycle decline will start in U.S. markets. It is difficult to discern what degree the waves since 2000 have been in, whether they are in the first Supercycle degree wave (A), of an (A) down, (B) up, (C ) down move for {IV} down or are in the third degree of  (C ) down. Due to the need for proportionality of waves, I am labeling the above moves since 2000 as the three waves for Supercycle degree wave (A) down, with the third wave for (A) down, cycle degree C down underway. That Cycle degree C-down is a five wave decline and the first of those five waves came from 2007 through 2009. The rally since is corrective wave (2)-up, which is concluding. Next will be a powerful and disastrous wave (3)-down of C-down of (A) down.

The Dow Jones Europe Stoxx 50 is completing a large Rising Bearish Wedge, with the recent rally popping above the upper boundary, which is known as a normal “throwover” which typically occurs at the very end of the pattern. This pattern is telling us that Europe’s stock market is soon going to fall hard, and possibly crash, the start of wave (3) down.

The Dow Jones Europe Stoxx 50 has just completed a Jaws of Death Stock Market Top. A strong decline should begin soon, the start of wave (3) down.

The Stoxx 50 has just completed a Jaws of Death Stock Market Top. A strong decline should begin soon, the start of wave (3) down.

Here is a final thought: What starts in Europe often spreads to the United States eventually. My new book addresses this coming event and how to prepare for it, the Amazon.com Investing Category Best Seller The Coming Economic Ice Age, Five Critical Steps to Survive and Prosper

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Robert McHugh Ph.D. is President and CEO of Main Line Investors, Inc., a registered investment advisor in the Commonwealth of Pennsylvania, and can be reached at www.technicalindicatorindex.com.  The statements, opinions, buy and sell signals, and analyses presented in this newsletter are provided as a general information and education service only.  Opinions, estimates, buy and sell signals, and probabilities expressed herein constitute the judgment of the author as of the date indicated and are subject to change without notice.  Nothing contained in this newsletter is intended to be, nor shall it be construed as, investment advice, nor is it to be relied upon in making any investment or other decision.  Prior to making any investment decision, you are advised to consult with your broker, investment advisor or other appropriate tax or financial professional to determine the suitability of any investment.  Neither Main Line Investors, Inc. nor Robert D. McHugh, Jr., Ph.D. Editor shall be responsible or have any liability for investment decisions based upon, or the results obtained from, the information provided. Copyright 2013, Main Line Investors, Inc. All Rights Reserved.