Why Europe’s Stock Rally May Fizzle Despite the US‑EU Deal

Buy the rumor, sell the news. It is one of the most classic Wall Street expressions. And it might just apply to what’s happening in European stock markets. So before you blindly follow the chorus of investment pundits touting “international diversification,” So to clarify, as they say in French or German, Acheter la rumeur et vendre la nouvelle, or Kaufe das Gerücht, verkaufe die Fakten.

President Donald Trump’s trip to Europe cemented a compromise between the U.S. and European Union which set baseline tariff levels at 15% for many goods. As usual, we’re still at the headline part of the ongoing trade ordeal, but that 15% level seems to be the new normal, since Japan settled at that same level.

However, as much as that type of news makes for nice lead stories on a Monday morning, in today’s short attention span market climate, we’re best to look beyond what’s happening “right now.” Because when I look at the charts of European large cap stocks, particularly a pair of big tech companies, they look as weak as the European stock market itself. And that’s pretty weak. Time to show you the charts of those 2 tickers and an ETF that owns the 50 biggest stocks in Europe.

ASML: Europe’s Semiconductor Powerhouse Shows Technical Weakness

ASML is a Dutch company that develops advanced systems for the semiconductor industry. In a part of the world in which tech stocks are less-prevalent than in the US and Asia, it is a market leader. The company is a high-quality operator and its debt/equity ratio is just 0.2x. But the chart looks challenging.

ASML chart. Source: Barchart.

Above, the stock’s rally just stalled, and the 20-day moving average is rolling over for the first time since March. That last downturn shaved a quick 20% off the stock price.

SAP’s Momentum Falters: What the PPO Indicator Signals

SAP is a giant software company whose business reaches globally. The US-traded shares have a market capitalization of $350 billion. The stock is up more than 200% the past three years, and it looks pretty tired. I used the weekly below to show SAP having just traded down to its 20-week moving average. More concerning is the lower part of the chart, where the PPO momentum indicator is rolling over. That doesn’t mean the stock is ruined, but it could halt the gains for a while.

SAP chart. Source: Barchart.

FEZ ETF Analysis: Heavy Exposure to ASML and SAP

ASML and SAP are only two stock holdings in FEZ. But they are the two largest, and together comprise 13% of that index. So it is not surprising that FEZ looks flat in the daily view below.

FEZ chart. Source: Barchart

Risk Management Tips for European Stock Investors

After a 30% run in under four months, European stocks, like those of their US counterparts, are not broken, but far from inexpensive. The headlines scream “deal” but the charts of some of the EU’s leading businesses, in the world’s hottest sector, provide a reason to keep risk management top of mind.