2016 will likely go down in the books as one of the toughest (in my experience) years to invest if you are a market technician. Technical analysis has been helpful but not anywhere near as it has been in the past. I have never experienced so many failed patterns both bullish and bearish. I believe it can be explained and chalked up to the fact the US stock market has been range bound for almost 2 years, while most foreign markets are languishing in bear territory.
The Italian stock market peaked in June 2014 with negative RSI momentum divergence falling almost 30% before it bottomed and rallied up to the 61.8% fib line. There it chopped around and formed a symmetrical head and shoulders pattern which confirmed in early Jan of this year gapping below the blue support line. It came to rest at important prior support (red horizontal line) and is once again chopping around trying to digest the 20+% decline. This is one pattern that did not fail but rather did exactly what was expected and met its objective.
While there is no pattern that has developed (yet), Italy has formed lower highs and lower lows while the 200 day moving average is steeply pointing south which screams “AVOID ME”. Because of the number of touches, we know the current (red) ~$10.75 support line is hot and if it should fail on another retest we can expect a much further decline. The first level of expected support would be another 20% lower at the July 2012 lows. Beyond that if further downside is on the table, we could see a retest of the 2009 financial crisis lows on the radar.
I believe in the short to intermediate term Europe is in deep trouble and their stock markets are a real reflection of that concern. From what I see and read Italy is in the top 5 of European countries in the worst shape. While anything can happen, the awful fundamentals combined with equivalent technicals is pointing to potential lower prices ahead. Until proven otherwise, long only investors should look at Italy with caution while those with the ability to short should be licking their chop