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Euro Index Consolidates At Key Support

07/29/05 09:46:45 AM
by Arthur Hill

Even though the Euro Index has stabilized near key support, it has yet to forge a bullish reversal to trigger an advance.

Security:   $XEU
Position:   Sell

On the weekly chart, the Euro Index ($XEU) peaked in December and declined throughout 2005. The decline broke the trendline extending up from January 2002, and the index is testing support from the 2004 lows. Also notice that support stems from broken resistance (May 2003 highs).

Graphic provided by: MetaStock.
Graphic provided by: Reuters Data.
Despite finding support around 120 in June and July, the Euro Index remains shy of a breakout. The daily chart focuses on the price action since January and it is almost all down. The index consolidated in June and July, but has yet to break the trendline extending down from March or the prior highs (123). A break above 123 would be medium-term bullish and would target an advance to the next resistance area around 130.

Graphic provided by: MetaStock.
Graphic provided by: Reuters Data.
Given the prior decline, the odds favor a continuation lower. The March-July decline was quite sharp and created an oversold condition. Securities work off oversold conditions with either a consolidation or a corrective advance. The Euro Index consolidated with sideway price action comparable to a flat flag. A move below the July low would signal a continuation of the prior decline and would target a move to around 110 (the next support area on the weekly chart).

RSI is trading at resistance. During the June-July consolidation, RSI moved back to 50, an area that provided resistance in April (blue ovals). RSI is holding above the green trendline extending up from the June lows. A break below that trendline would be bearish for momentum and could be used to confirm a downward break in the index.

Arthur Hill

Arthur Hill is currently editor of, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for and the main contributor to the ChartSchool.

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Date: 07/30/05Rank: 4Comment: 

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