Levels to watch: FTSE, DAX and Dow

The stars are aligning for the end-of-year rally it seems. The Federal Reserve has done its job and now the way appears clear for the bulls to take charge once again.

Man looking at data on a screen
Source: Bloomberg

FTSE could open way to 50-DMA

Day three of the rally finds the FTSE 100 moving back above 6400, up over 4% from the lows of the week. A close above 6400 will open the way to the 50-day moving average at 6520, with 6450 providing some potential resistance on the way.

A move out of oversold territory on the daily relative strength index signals that this index has found the strength to rally. On the hourly chart the 200-hour moving average is providing some resistance for the time being, but an uptrend from the lows of 16 December around 6150 is now in place.

A drop back to 6250 and then 6150 would negate the bullish outlook, but with the Fed out of the way, the path ahead seems clear for further gains.

DAX could find support at 9360

The price action here has used the 50-week moving average as support, establishing a base from which to rally, helped along by the 50-DMA as well. The first target now is 9800, followed by the December peak around 10,100.

As with the FTSE, the 16 December lows have provided the beginning of a rising trendline that could offer good support should the price action turn more bearish in coming sessions. Unlike the FTSE, the DAX has broken through the 200-H MA and is moving on up, even if an overbought reading on the same timeframe does mean that caution should prevail.

Seasonality should continue to drive the market upwards, as end-of-year buying takes over, but 9520 and 9360 could act as support if the bulls fail to keep their appointment.

Rising RSI tempts traders

The 100-DMA has provided the saving grace for the bulls and this, coupled with the daily rising RSI, tempted many to enter long ahead of the Federal Open Market Committee statement. Dovishness remains the key driver for risky assets and now that we are seeing price action above the 50-DMA, the focus is on breaking above 17,600.

Hourly RSI is overbought but given that the price has surged through the 200-H MA and the 17,514 level (50% retracement of the decline from the recent all-time highs to the lows at 17,038), 17,630 is now the target. A move through here would be bullish and would ultimately put the bias on a return to the recent highs. The near-term target for the Dow Jones would be 17,766 in advance.

Below the 200-H MA lies 17,464 with 17,400 offering baseline support.

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