|The charts for the German DAX and French CAC 40 look a lot like the S&P 500 chart in the U.S. All three have been in trading ranges over the last few months and recently tested their May lows. The patterns looks like large symmetrical triangles and a move below the July low would be most bearish. As long as these triangles hold, and their range continues to tighten, the outlook is neutral.|
Figure 1: Chart of German DAX.
Figure 2: Chart of French CAC.
The chart for the Bel-20 (Belgium) paints a more bullish picture though. While the DAX and CAC 40 traded down to their May lows, the Bel-20 held well above its May low and recently broke above its May high (gray arrow). The Bel-20 shows good relative strength (relative to both Europe and the U.S.) and this could foreshadow further strength in the index.
|Figure 3: Chart of Bel-20.|
|Graphic provided by: MetaStock.|
|Turning to the actual price chart, the pattern at work looks like a symmetrical triangle. These are typically neutral patterns dependent on a breakout for a directional bias. The trendline break is still relatively young, but the three month high bodes well and should be considered bullish as long as the July low holds (2400).|
|There are two methods to project an upside target. First, a trendline can be drawn parallel to the lower trendline and extended into the future. This (gray) trendline projects an advance above 2600 and to around 2680 over the next few months. Second, the width of the pattern can be added to the breakout for a confirming target around 2680 (2525 - 2325 = 200, 2475 + 200 = 2675).|
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