Dutch AEX Ascending Triangle Pattern 1-Hour Chart
Euro Area indices have been on a tear higher as the introduction of quantitative easing and weakening of the Euro have made regional stock benchmarks more attractive. Boasting one of the region’s highest credit ratings, the economy of the Netherlands continues to be one of the last bastions of growth and safety in the monetary union. The recent kickoff of European Central Bank President Mario Draghi’s asset purchase program has broadly lifted stocks across the monetary union.Â
The intention of monetary easing is to push down longer-term borrowing rates and stimulate bank lending by freeing up cash through asset purchases. However, Draghi’s program faces two major hurdles. The first hurdle is the shortage of quality collateral across the Eurozone, making it difficult for him to accomplish his bond buying target. Second, instead of lending the cash freed up from quantitative easing, banks are purchasing stocks. The incentive for banks to lend at record low interest rates amid soaring nonperforming loans on balance sheets is not attractive, hence the move towards riskier assets.
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Quantitative easing has seen the German DAX rise to record highs with other major benchmark stock indices following the momentum higher. The Dutch AEX is presently trading at the highest valuation since 2008 as that nation’s modest growth and stable outlook make it an attractive place for investors to park cash amid all the uncertainty. The ascending triangle formation setting up in the index has a bullish bias, with further upside expected as quantitative easing kicks into a higher gear. Resistance at 500.10 and a multi-week uptrend form the triangle as the index presently consolidates between the two levels. Any breakout above resistance will see increased momentum and volatility. Reward should be set to approximately 60-75% of the distance between the beginning of the uptrend line and the resistance line. Any move below the uptrend should be treated as a reversal and breakdown in the ascending triangle pattern.
