European markets opened cheerfully higher today but have reversed lower after hitting major resistance areas in early trading. Price action since December lows has been pretty much perfect. Equities bounced on the lows of the channel that has been in place since August last year.

Over past days the European main indices have been consolidating small and tried pushing the upper part of the channel today, but failed as momentum is fading, despite the bullish price action in Asia.

Eurostoxx 50 futures reversed very close to the big resistance at 3100. Note the negative channel as well as the 50-day average at the big 3100 level.

Mighty DAX reversed right on the big 11k area we outlined as first resistance to watch earlier this month. Note the negative trend, the big 11k level as well as the 50-day average all reached this morning.

While European equities (as well as US futures) pushed higher this morning, credit markets remained rather unimpressed. Credit has come off rather hard over past sessions (after the capitulation in December) but has found some “support” at these levels. After all, economic stats out of Europe, as well as the UK and Italian mess, continue to be a headache. We won’t get any meaningful bullish move in Europe unless credit starts easing more, so be sure to watch the iTraxx main for clues.

Eurostoxx 50 futures (orange) versus European credit (inverted, white) continue to trade in tandem. The dislocations we saw in November, both ways, are not to be seen here, but watch the relationship closely, as we need them to move both in the same direction for any meaningful moves.

When it comes to Europe, we stick to our recent logic of taking some (long) chips off the table.

Source: charts by Bloomberg