Why The Italian Stock Market Is Readying For Liftoff

The ongoing Greece negotiations have overshadowed the improving technical conditions of several European equity markets. The London Financial Times Index (FTSE) is attempting to breakout above the 1999 highs after successful tests of the 200-week sma in late 2014. The French CAC 40 Index (CAC) has broken out from a multi-year channel after a successful test of the 200-week in 2014. The FTSE Milan Index (MIB), representing the Italian stock market, has shaped a multi-year Inverse Head-and-Shoulders pattern after successful tests of the 200-week sma in late 2014. The first successful test of the 200-week sma by multiple European equity markets indicates that the markets are in a secular bull market, albeit at different stages.

FTSE MIB Index (MIB) | Italy iShares (EWI) – Weekly Chart & Insights

I project that the FTSE Milan Index (MIB) and the Italy iShares ETF (EWI) offer tremendous upside for the long-term investor. A successful breakout above the neckline of their respective Inverse Head-and-Shoulder patterns would suggest a move to the 200-month sma currently at 28357.05 is a high probability in 2015. “Stock indexes typically begin rallies from the vicinity of the 200-week average, often starting during a recession before any economic rebound is evident (Belkin Report).”

charts created on StockCharts – click to enlarge

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italian stock market_ftse milan index chart


FTSE MIB Index (MIB) – Monthly Chart and Insights

The MIB Index fell 72% from the 2007 high to the 2012 low. I would label it is a ‘depression-like’ decline. An index requires considerable time to reset after a decline well below the 200-month sma. The chart below highlights how the Italian stock market has taken years to correct the technical damage and define a high probability entry.

italian stock market chart 1993-2015


The day-to-day negotiations regarding Greece may get the headlines and generate some short-term volatility, but I project that the negotiations will actually lead to a robust solution that can be a framework for future debt negotiations. The price action of European equity markets in recent months indicates that equities are beginning a new leg in the secular bull market, ignoring the concerns of a 2011 redux.

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Thanks for reading.

    Follow Sheldon on Twitter: @hertcapital

No positions in any of the mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.