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Chartists say eurostocks face abyss as levels breached
By William Kemble-Diaz from Reuters31 January 2003
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London (Reuters)
The number of European stock indices breaching October's multi-year lows piled up on Wednesday as shares sank, leaving technical analysts in no doubt that more pain is in store for the region's war-weary investors.
"The fact we've dropped below these levels pretty much means that the market is re-establishing the downtrend that began when the dotcom bubble burst in 2000," said Steven Wesiak, a pan-European technical analyst at ABN Amro in Amsterdam.
The Euro Stoxx 50 index of euro zone blue chips joined the broader pan-European Eurotop 300 benchmark by sliding another 2.0 percent and breaching October's five-and-a-half-year low.
That took the Euro Stoxx 50's loss so far this year to around 12 percent and underlined the extent to which the memory of last year's market-boosting interest rate cuts have faded as concerns about a U.S.-led war in Iraq mount and as the outlook for company profits has remained limp.
Around Europe, Amsterdam's AEX was the latest national stock market index to slip below October's trough after London's FTSE 100 and the Swiss Market Index achieved that feat on Friday and Monday respectively.
Copenhagen's KFX index index was poised to follow suit on an intraday basis, having breached October's closing low on Tuesday.
More to follow
Italy's Mib-30, Germany's Dax, France's CAC-40, and Spain's Ibex benchmarks are not quite there yet, but technical analysts were in little doubt that they will soon follow and undershoot their autumn lows.
"I think the CAC-40 is heading straight to 2,575 points and maybe even lower than that," said CIC chartist Pierre Vignaud in Paris, with the French benchmark down 1.3 percent at 2,763.
"At that level, there will probably be a rebound, but it won't be because the fundamentals are improving but rather because, like in August and November last year, people will get scared that markets have gone too low."
Meanwhile, in Amsterdam, where the AEX was hovering just below 280 points, traders warned of a possible slump to as low as 200.
"The break below 280 is merely an intraday breach but a close below 280 is just a matter of time," said Cees Quirijns, technical analyst at Stroeve Effectenbank in Amsterdam.
And in Madrid, where the Ibex benchmark broke through support at 5,850 points, Juan Antonio Cabrera, an analyst at savings bank Caja Madrid, said the next target was 5,500.
Back on the pan-European ranch, technical analysts were equally bearish.
"Ending the week below October's low (2,115.32 on an intraday basis) would open the way up for a move in the Euro Stoxx 50 to 2,000," said Wesiak, as the index strayed either side of that mark.
Short-term bounce
Expectations of a bounce in the short-term were widespread, although investors appeared to have little appetite to position themselves against the downtrend by snapping up potential bargains.
The 14-day relative strength index -- a popular tool among chartists measuring a market's susceptibility to a correction -- is in single-digits or deeply oversold territory, suggesting a sharp bounce may not be far away.
But technical analysts said that was no guarantee that a major correction would occur over coming days.
"If it's a runaway market, you'll just stay oversold and it may mean that the sell-off just slows down until the RSI moves a bit higher," said ABN Amro's Wesiak.
In London, Europe's biggest market, there was a widespread feeling among dealers that 3,200 could offer some support for the FTSE 100, which fell 1.4 percent to 3,440.
But the mood remained gloomy as investors homed in the looming threat of war after U.S. President George Bush called on the U.N. Security Council to convene on February 5 to hear new intelligence on Iraqi weapons of mass destruction, paving the way for a possible attack.
"Overall I'm still bearish, I think the market will go substantially lower, although we're due a rally," a technical analyst at a leading London brokerage said.
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