Stock markets of Europe's most debt-ridden countries fronted a
global sell-off Monday after a top European financial official
said the Cyprus bailout could be a road map for resolving future
eurozone banking problems.
But in an effort to calm the markets, Dutch Finance Minister
Jeroen Dijsselbloem later issued a statement noting that Cyprus
had exceptional challenges that called for taxing deposits in the
country's largest banks and that "macro-economic adjustment
programs are tailor-made to the situation of the country
concerned and no models or templates are used."
IShares MSCI Spain (
), down 4.67%, andiShares MSCI Italy (
), off 4.06%, plunged deepest among all nonleveraged
Vanguard MSCI Europe ETF (
), the largest ETF covering the region, fell 1.60% in heavy
trade.IShares MSCI EAFE Index (
), tracking foreign developed markets, skidded 1.25%.
The European stock market will likely correct less than 10%
and rally back by year's end as economic growth resumes thanks to
easier year-over-year comparisons, said Alec Young, global equity
strategist at S&P Capital IQ.
Europe is trading at 12.6 times this year's projected
earnings, its highest in three or four years, as macro-economic
data deteriorates, so a short-term pullback is in order, he said.
Young projects Europe's economy will shrink 0.3% this year and
grow 1% in 2014, while the rest of the world expands about 3%
"A correction is overdue, given the powerful gains since last
June," Bob Doll, chief equity strategist at Nuveen Asset
Management, wrote in a client note. "The global economy is slowly
strengthening and policymakers remain extremely accommodative,"
which supports equity prices.
EWP plunged to a three-month low in heavy volume Monday. It's
fast approaching the key 200-day moving average, a key technical
level that often provides buying support. Breaking that line
would confirm a downtrend.
Its weak IBD Relative Strength Rating of 46 shows EWP has
lagged more than half of the market in the past 12 months. Its
Accumulation/Distribution Rating of C, on an A-to-E scale, shows
institutional buying and selling are about even.
EWI closed decisively below its 200-day line for the first
time since early September and at its lowest level in more than
six months, confirming a downtrend Monday. Its weak RS and
Acc/Dis Ratings combination of 31 and D- shows institutional
investors are fleeing.
VGK fell below its short-term 50-day moving average. But it's
only tumbled 5% from its 52-week high, which is considered a
normal pullback in an uptrend. It carries a middle-of-the-road RS
Rating of 49 and a rather weak Acc/Dis Rating of D+.
EFA also fell below its 50-day line but it's only dipped 2%
from its 52-week high.
"If the panic du jour in Cyprus is resolved quickly, then
stock prices should move still higher," Ed Yardeni wrote in a
client note Monday. "Over the past four years, crises have been
buying opportunities as crises-triggered corrections have been
followed by relief rallies to new bull market highs."
Cyprus is a tiny island and although people may yank their
money out of weak European banks, government bond yields and bank
share prices show no signs panic thus far, he added.