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Levels to watch: FTSE, DAX and Dow

The question everyone will be asking this morning is, ‘was that it?’ Have we seen the end of the correction or was the bounce of the last two sessions merely a consolidation before the next move lower?

A chart
Source: Bloomberg

It’s a quiet start in economic terms, with only some light housing data and German producer price figures to entertain investors looking for an early start out of the blocks this morning.

Perhaps the most important event will be the meeting of French and German finance ministers. Germany is playing a dangerous game at present, opposing quantitative easing from the European Central Bank while its own economic position deteriorates rapidly. Unless the Germans learn to stop worrying and love QE the eurozone could be about to plunge into a new crisis made all the worse by the inability of the central bank to take forceful action.

If there is hope, it lies in earnings season. The reporting period from our American cousins is now in full swing and provides the best hope that this bounce will turn into a sustained rally. Around 25% of the S&P 500 is posting numbers, so look out for signs that the underlying recovery in the US economy remains intact.

FTSE targets 6400

While we have seen the FTSE 100 edge back from its euphoric gains in the overnight session, the rally off last week’s lows is still broadly intact for now. So long as the 6190 zone from Thursday and Friday holds the bias should remain to the upside. The 6400 level is an immediate short-term target, with a follow-up move taking us on to 6460.

The hourly chart does show that the 200-hour moving average has been significant resistance so far this month, with an attempt to break through this indicator early this morning being knocked back in short order. Any move through the 6340 area would be bullish, while a move lower targets 6174.

DAX could target 8960

The DAX has found itself losing ground again this morning but this has more to do with the lack of big-ticket data to motivate traders after a heavy week. Scepticism abounds regarding this upward move but so long as the index holds above 8640 it could target 8960 and then 9100.

Below the 8640 zone the closing lows from Wednesday and Thursday around 8570 become targets, followed on by 8480 and 8350. The bounce from oversold levels on the daily relative strength index has been stymied by the move lower this morning, but any move back through the 50 mid-point should be seen as bullish.

Dow has room to move higher

US indices, and the Russell 2000 in particular, led the way higher last week and it seems entirely plausible that they will continue to do so. Gains so far have emulated those of the FTSE 100 and run out of steam near the 200-hour MA, indicating that the 16,460 area is one that needs to be overcome. A move above here would target 16,600, also very close to the 200-day MA, with the drop out of overbought conditions on the intraday RSI giving the index room to move higher.

Declines today may find buyers around 16,380, but a move through here would point the way to 16,340 and then 16,200. A steady rise in the daily RSI lends weight to the idea that the upside scenario still has the upper hand for the time being.

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