Our friends in Europe love a good party.
But who can blame them? Especially since they just endured a rotten couple years filled with near-meltdown conditions.
I’ve stumbled onto countless concerns about the speed with which domestic markets lifted off to start the year. But if you think the S&P climbed too quickly — check out Italy and Spain. After posting modest gains during the first week of the new year, both these markets exploded to the upside, quickly outpacing the S&P.
But as you can see, both Italian and Spanish shares are rolling over a bit. It looks like that Jan. 1 hangover showed up a little late this year…
Both pullbacks are abrupt — but completely necessary. Using the Italy iShares as a proxy, I’m seeing a retreat from the highest overbought levels since 2009. Ditto for Spain.
But before you put on your bear suit, I offer a quick word of warning:
Despite these sharp pullbacks, Italy and Spain have some very nice-looking charts. Big volume. Clear bottoms forming. They could end up having a fantastic year.
Right now, we’ll have to see when and where buyers step in and stop the bleeding. If the consolidation becomes more orderly, you could be looking at a couple of solid buying opportunities.
Greg Guenthnerfor The Daily Reckoning
Greg Guenthner, CMT, is the editor of the Daily Reckoning’s Rude Awakening. He is also a contributor to Agora Financial’s Trend Playbook, a free resource for trend followers and technical traders. Greg is a member of the Market Technicians Association and holds the Chartered Market Technician designation.
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