Will This Correction Get Worse? Watch European Financial Stocks

All of the major stock indexes in Europe and the United States has been weak ever since Ben Bernanke announced his QE-3 program on September 13, 2012. It seems that the QE-3 announcement by the central bank was a "sell the news" event and stock markets have been in correction mode ever since. The day after the QE-3 program was announced, the S&P 500 Index traded as high as $1474.51 on that session before topping out. This past week, the S&P 500 Index closed at $1379.85 declining by nearly 100.0 points in less than two months.

At this time, many traders and investors can argue that the decline in the S&P 500 index is just a natural and healthy correction from an overbought condition in September 2012. After all, the S&P 500 Index is down by only 7.0 percent at the moment. This correction is certainly not the end of the world, yet. We may have to wait for December before that happens. In any case, there are a few leading stocks that should be followed closely to see if this correction can turn into something more severe. Since this is now a European financial debt crisis the leading European banks must be watched very closely.

UBS AG (UBS) is one of the leading European financial institutions in the world. This stock has held up very well as of late. Over the past three trading sessions the stock has pulled back from a 14-month high. Should this stock begin to fall sharply, it would be an indication that the economic conditions have worsened in the near term and this recent decline in the stock market is more than a natural correction. Traders can watch for near term support around the $14.25, $13.47, and $12.55 levels.

Credit Suisse Group Inc (CS) and Deutsche Bank AG (DB) are two other leading European financial institutions that should be watched closely. Both of these stocks will tell us a lot in the near term when it comes to this current financial crisis. Should these stocks begin to decline sharply it is a sign that the central bankers are losing control of this inflation induced recovery. Some other leading European financial equities that traders may want to follow include the iShares MSCI Europe Financials Sector Index Fund (EUFN), and Banco Santander, S.A. (ADR) (SAN).