After a terrible day on Monday, with stocks going through the floor, there's something far better on the horizon for European equities, at least according to some analysts. Morgan Stanley's Graham Secker and Matthew Garman say that their market timing indicators are flashing a "full-house buy signal" for European equities for the first time since 2009, and only the 6th time in the last 25 years. That's a solid sign to them that markets will be higher in three months' time. This is their explanation: We do not believe that the ongoing economic weakness in EM and China will significantly drag down the European economy. Consequently, we feel that the current volatility in equity markets is likely to be temporary rather than the start of a long and painful bear market. While markets may stay volatile in the short-term, we believe that MSCI Europe will be higher in 3m time and recommend investors ultimately use this opportunity to add exposure to European equities. Here's how it looks: There are five elements that Morgan Stanley uses to decide when something is a "full-house," as they explain in their note: Three of our Market Timing Indicators (CMTI, Risk and Fundamentals) had been giving a buy signal since the height of Greek worries in early July, but given that last week Europe was down over 6%, both our Composite Valuation Indicator and our Capitulation Indicators (which measures price momentum and market breadth), both moved below their traditional buy thresholds. This meant that as of Friday all five of our Market Timing Indicators fell into buy territory at the same time, a so called “Full-House Buy Signal”. That means that even during the major rally in European equities earlier this year, the market timing didn't look this good. What's more, the only previous buy signal that hasn't taken place during a recession or bear market was in 1998 — in that case stocks were higher 3, 6 and 12 months after the signal was recorded.Join the conversation about this story » NOW WATCH: The rich and powerful are going crazy over these luxury SUVs with bathrooms and cable TV
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