Pro Perspectives 2/20/20

February 20, 2020

We've talked about the Chinese central bank effect on global markets. 

Among the biggest winners since China became the backstop for global markets earlier this month:  the beaten down areas of the European stock market.  

With that, let's revisit an excerpt from my February 10th note, where we discussed the opportunities in Spanish and Italian stocks…

"With a quarter of a trillion dollars of Chinese money undoubtedly being put to work in global markets, let's take a look at some opportunities in European stocks. 


Like U.S. stocks, German stocks are on (or near) record highs.  But there are very compelling laggards in Europe.  Italian stocks are well off of record highs, still 44% off of the pre-global financial crisis highs.  And you see in the chart below, the FTSE MIB traded today to the highest level since October of 2008.  

Next, here's a look at Spanish stocks.  It looks like a big breakout may be underway here too, with a break and three closes above this big trendline.  This line comes in from the 2007 highs.  Spanish stocks remain 38% off of those highs.

These markets have indeed been among the biggest winners for the month, and these technical lines have given way, as you can see in the updated charts below …

This continues to look like a huge opportunity to be buying the laggards in European stocks (Spain and Italy)… but only if the euro holds up.

This is a huge moment for the history of the euro.  A break of this 20-year support would be ugly and bring about discussions of a return to the all-time lows.  And that would likely be accompanied by draconian scenarios for the euro zone and the survival of the euro.