Janet Yellen steered a deft course in her testimony yesterday, seeming at once to be both hawkish and dovish. Equity markets focused on the latter, moving higher once again. Even the FTSE 100 has joined in the party, moving to fresh all-time highs, although it continues to lag behind other indices such as the DAX, and even the FTSE 250.
FTSE could find support at 20-DMA
We can look with fresh optimism towards the FTSE 100 this morning, as the consolidation above 6900 gathers strength. For the moment there is little inclination to head towards 7000, but this is likely to be just a matter of time.
The stochastic momentum index sits firmly in overbought territory, but it has yet to be joined by the daily relative strength index. Although the 50-day moving average is now crossing over its 200-DMA counterpart, there is a sense that most of the February upward move is now done and bulls should be cautious – any long positions are probably likely to be of short duration for the time being.
Support is likely around the 20-DMA, while on the hourly chart the index continues above its trendline from 12 February, which could bring out dip buyers if we head closer to 6920.
DAX 8%+ from October lows
The DAX punched through its ceiling around 11,180 yesterday, buoyed by Ms Yellen’s testimony. Now we look to see if the price can consolidate above here or whether the move was a false breakout that will be reversed for the time being. A close below 11,150 would confirm the latter hypothesis. Further declines will send us back towards this index’s 20-DMA, currently around 10,920, which provided excellent support in recent weeks.
Dip buyers would ideally like to see a retracement all the way towards 10,350, but this is perhaps too much to hope for, even if the index is now more than 950 points (8%+) from the rising trendline off the October lows. Gravity may well exert itself in due course to bring the index back down, and when that happens dip buyers will do well to screen out the doom-mongers that will predict the end is nigh.
Dow could find resistance around 18,340
The Dow Jones is headed towards its own ceiling, which touches the peaks seen in January and December 2014, as part of a rising wedge with the lower line running from the October lows and finding support at the beginning of this month.
Resistance is thus likely around the 18,340 line, and while this does allow for some limited upside (especially with a daily RSI that has yet to move into overbought levels), the stochastic momentum index has been unable to push much higher from current levels.
A more sustained dip on the hourly chart would take us back towards the 200-hour MA just above 18,000, which coincides nicely with rising support from the February low. With the RSI and SMI both falling on the hourly chart we could see a period of weakness before the fresh leg higher that takes us above 18,300.