Euro Stoxx 50: Top In or Just a Pause?
Quick overview
Bias: Bearish, but no strong conviction
Structure: Wave 5 looks complete, but the decline since August looks corrective
Short trigger: Close below 6,015 with strong momentum
Bullish alternative: Close above 6,380
Plan: Wait for one of those levels to break, then reassess
Where we are
My main count has the five-wave advance finishing in August near 6,590. Wave 3 peaked in late February, wave 4 bottomed around 5,380 in late March, and wave 5 carried price to the August high.
Since then, the index has been grinding lower inside a falling channel. Price is now at 6,137.7, below both the 20-day EMA (6,171.3) and the 50-day EMA (6,239.4), and the 20 has crossed below the 50. On the surface, the trend has turned bearish.
The problem with the bear case
The decline doesn't look impulsive to me. It's choppy and overlapping, and reads better as a double zigzag (w)-(x)-(y) than a clean five waves down.
Corrective moves tend to retrace, not reverse.
If that's what this is, the August high may not be the end of the uptrend. It could be wave 1 of an extended wave 5, which is the alternative count on the chart.
In that case, the current drop is just wave 2, and the next leg could take price back above the August high.
The two levels I'm watching
6,015: Support that held in February and again last week. A close below it with strong momentum favours the bearish count, and that's where I'd look to go short.
6,380: The (x) high from early October. A close above it builds the case for the extended wave 5 and weakens the bear view considerably.
Macro backdrop
The fundamentals lean bearish. French borrowing costs are at their highest since 2002, the spread over German bonds is at a 15-year wide, and the euro area PMI is at a four-month low. That said, the ECB meets on Thursday, and a more hawkish tone or any easing in French stress could take the edge off.
My current view
This is one of those charts where I don't have strong conviction either way. The trend says down, but the structure says it could be a correction. Rather than guess, I'm letting price decide. A close below 6,015 or above 6,380 should tell me which count is right, and I can reassess from there.
Disclaimer: This post reflects my personal analysis and is for educational purposes only. It is not financial advice. Trading involves risk, so please do your own research before making any decisions.
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