Europe Lags While U.S. Stocks Look Overpriced

The major indices fell slightly Wednesday, breaking a five-session streak of record highs. The Nasdaq and Russell 2000, representing mid- and small-cap stocks, made modest gains.

There was little in the way of economic or earnings news to move the markets. And even news from abroad was scarce. However, the STOXX Europe 600 index fell 1.1% on worries about future economic growth in the region.

Financials took a hit as regulators fined six major banks a total of $4.3 billion following a currency rigging investigation. Bank of America Corp (BAC), Citigroup Inc (C), JPMorgan Chase & Co. (JPM), Royal Bank of Scotland Group PLC (RBS), HSBC Holdings plc ADR (HSBC) and UBS AG (UBS) shared the fine.

Fossil Group Inc (FOSL) and Macy’s, Inc. (M) made big gains after reporting better-than-expected earnings. The SPDR S&P Retail ETF (XRT) jumped 1.9%.

At Wednesday’s close, the Dow Jones Industrial Average fell 3 points to 17,612, the S&P 500 was off a point at 2,038, the Nasdaq rose 15 points to 4,675, and the Russell 2000 was up 7 points to 1,186.

The NYSE’s primary market traded 718 million shares with total volume of 3.2 billion shares. The Nasdaq crossed a total of 1.7 billion shares. On the Big Board, advancers outpaced decliners by 1.2-to-1, and on the Nasdaq, advancers were ahead by 1.6-to-1.

When there is a slow day in the U.S. markets, it’s sometimes interesting, and even profitable, to view what is going on in other parts of the world.

As noted before, there are real concerns over future growth in the economically diverse European Union.

IEV Chart
Click to Enlarge

Chart Key

This chart of iShares S&P Europe 350 Index ETF (IEV) shows the intermediate- and long-term trends are down. A death cross is prominent, and so is the sharp channel down.

Until prices punch through the 50-day moving average at $44.35, this chart will remain bearish. However, note that Tuesday’s upside volume was unusually high, indicating some possible institutional interest.


Across the pond, the economic picture is not bright, as depicted by IEV’s chart. In order to reverse to the positive, this ETF must successfully charge above its 50-day moving average.

I’d invest in U.S. stocks if I’d invest at all at current prices. My strategy remains unchanged: Buy only extremely undervalued stocks with positive technicals and fundamentals.

Selling at current prices may be the best strategy of all since a correction from a P/E of about 18 on the S&P 500 has occurred several times this year.

Retail stocks will be the primary focus of investors as we approach the holiday shopping season, during which retailers make about a third of their sales for the entire year. Check out the Trade of the Day for a retailer whose future isn’t looking so merry.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here.

For a list of this week’s economic reports due out, click here.

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