For U.S. stocks the long-term upward trend is in danger--thanks to worries about the euro

05/24/2011 6:22 pm EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

So far—and I mean “so far”—the major U.S. stock market indexes remain in their long-term upward trends. But we’re getting close, the technicians say, to levels that would put the continuation of that uptrend in doubt.

For the Dow Jones Industrial Average, which drooped to 12356 at the close today, May 24, the key level for support is 12100, wrote Arthur Hill on May 23 on StockCharts.com. That level represents the low for April and the trend line that stretches back to last November. A close solidly below that number would mark a new level of risk in the U.S. stock market.

One thing that troubles me about the U.S. market’s ability to hold that level and keep that upward trend line intact is the breakdown of core European stock markets. The Italian and Spanish markets have both broken support but those declines aren’t what worry me. It’s the breakdown in the Dutch market where, Hill notes, the Dow Jones Netherlands Index broke below its March low recently. The Dutch economy has been one of the stronger in Europe.

The German and French stock markets—the keys to Europe’s financial markets—are also looking a little shaky. The Dow Jones Germany Index, Hill reports, made a 52-week high on May 2 and then couldn’t hold that high and began a sharp decline. The Dow Jones France Index looks like it formed a double top in late April/early May. A double top, technicians say, is often the sign of a market ready for a significant correction.

I plan on keeping a close eye on these European indexes. Both the French index (CAC 40) and the German DAX were up slightly today, but frankly that looked like the result of profit taking in the dollar. It will be hard, in my opinion, for U.S. stocks to maintain their long-term upward trend if the core European markets of France and Germany break down.

 

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