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Levels to watch: FTSE, DAX and Dow

It’s been a busy week for central banks, with the Federal Reserve getting away with the end of QE without market disruptions and now the Bank of Japan unleashing fresh easing. We have seen big moves higher this week but the question remains whether the rally has been sustained.

Bank of Japan
Source: Bloomberg

The auguries are good for a rally towards the end of the year, but indices are beginning to look a little overstretched at this level. It would not be surprising to see a weaker end to the session today, or indeed a period of losses next week ahead of non-farm payrolls.

Those looking to go long would be well-advised not to chase this move, particularly on the final day of the month, when rebalancing among major funds and investors takes place. There is a feeling that the market has gone a bit too far, too fast, even with the undoubtedly bullish move from the BoJ.

We still have no easing from the European Central Bank, and the end of QE by the Fed, but loose monetary policy is alive and well in Japan. This will provide a foundation for further moves higher in equity markets over coming weeks, although some pullback would not be unexpected, and indeed even a welcome move to remove some of the froth.

FTSE back above 6500

The leap higher in London continues, with the hourly chart showing the strong trend that sees the FTSE moving back above 6500 this morning. The 6550 level seems to be providing resistance this morning for the time being, but on the daily chart the 50-day moving average at 6610 is the first target, with the 200-DMA at 6690 the next line.  Beyond that we are once again in the area that will target the all-time highs at 6934.

Yesterday’s dip to the 200-hour MA was a classic short-term bear trap, so for now we look to 6460 and then 6400 as potential support should the index succumb to profit-taking in coming sessions.

DAX unable to move past 50-DMA

The DAX has already touched the 50-DMA this morning but has so far been unable to press its case beyond this point. A close above 9320 would put us on course for the 9500 zone, but DAX watchers should be careful.

A potential descending channel could be forming at present. We had two tests of this on the downside, in August and then October, and the September bounce hit the top end. A continued rally in the DAX would see the top of the channel around 9490, so we could see nervousness increase as we head in that direction.

Dips towards the 200-hour MA have been resolutely bought, and ideally another drop back in the direction of 9000 would provide the breathing space for another leg higher. The overbought condition of the intraday relative strength index flags a warning that this move upwards may have run its course in the short term.

Dow still overbought

Having stormed through the long-term uptrend yesterday the Dow Jones is surging into fresh all-time highs today. Still we are overbought on the daily chart here which could signal a stalling of momentum and possibly even a modicum of selling as the week ends.

On the hourly chart the index is dangerously overbought, and more than a few traders will be watching to see it move back out of this condition as a signal for a short-term sell order. A move back towards the 50-hour MA at 17,084 or even the 100-hour at 16,980 would provide the ideal dip for fresh buyers to enter, and with around 240 points between the price and the 50-hour MA a snapback for the end of the week is entirely plausible.

The trend is up, but the message is, ‘don’t chase it!’

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