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Levels to watch: FTSE, DAX and Dow

Indices were suitably enthused by the European Central Bank’s actions yesterday and have held on to much of the gains made overnight. But with the Greek election looming, today is likely to be a much quieter session.

A man looking at a chart
Source: Bloomberg

Mario Draghi laid out a suitably impressive plan yesterday to help stabilise the eurozone. The response from markets was to see indices rally and the euro fall to fresh multi-year lows against other major currencies.

Now we wait for Greece. For those of a historical disposition it is interesting to note how the next phase of Europe’s history may hinge on the outcome of the Greek elections. Syriza has increased its lead in the polls, with a 5-6 point lead over rivals, suggesting that it will emerge victorious over the weekend. After that the picture becomes murkier – Mr Draghi could see some of his good works eroded, but my guess is that the confidence boost from yesterday’s ECB announcement will be enough to see markets through the initial stages of Greek disruption.

FTSE in overbought territory

After an 8% rise off the lows of last week it is not surprising to see the FTSE 100 stall this morning now that the ECB is out of the way. With December’s high breached the index is now targeting the 6900 zone that dominated trading throughout 2014, although it has now pushed into overbought territory once more. The previous two incidences of this led to sharp declines, and with Mr Draghi out of the way markets may struggle to find the good news needed to maintain the rally.

For the time being the 50-hour moving average has underpinned this move higher, so dips towards this indicator around 6760 may well be bought, while further support potentially lies around the 200-hour MA at 6580.

DAX at all-time highs

The German index now sits at all-time highs once again, with predictions of a post-ECB selloff yet to materialise. Like the FTSE the DAX is overbought, but the latter has shown much less skittishness about staying overbought for an extended period compared to the former – witness its persistence during late November and early December.

However, it is sharply overextended from the major moving averages, and a degree of profit-taking would take us nicely back downwards for a fresh ‘buy on the dip opportunity’.

The uptrend on the hourly chart continues to hold too, with support from this line now entering the picture around 10,270. Even dips towards the 100-hour MA have been resolutely bought over the past two days, so keep an eye out for moves in the direction of 10,300.

Dow targets 17,900

Compared to its European peers the move in the Dow Jones so far has been relatively modest – moving only 3% higher from the closing lows of last week.

The first target now is the area of 17,900, with a close above here putting us within easy striking distance of the 18,100 highs seen at the end of 2014.  

The hourly chart shows bullish developments as both the 50- and 100-hour MAs cross above the 200-hour MA, with support likely around the 17,600 level (the peak of gains over the 15-20 January period). However, like other indices, the Dow has moved significantly away from its rising trendline, which in this case began on 16 January. This would provide rising support around 17,600, but that is now some distance away.

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