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Levels to watch: FTSE, DAX and Dow

Ahead of the European Central Bank excitement later, markets are enjoying small gains, having endured a choppy session yesterday.

NYSE traders
Source: Bloomberg

For a time on Wednesday it looked as if the rally in European markets had come to an end. Major indices such as the DAX and CAC were testing their trendlines, with talk of an impending correction bandied around.

It seems a little different this morning. The bounceback began in the afternoon session, as US markets steadied the ship, and indices have held on to these gains this morning. Admittedly, the ECB meeting will need to avoid disappointing investors with any further details on quantitative easing, but the buyers are still in charge for the time being.

FTSE targets 6960

The FTSE 100 tested the 20-day moving average yesterday, but once again this indicator, combined with the 6900 area, kept the index from declining further. This puts the focus back on a potential upside break of the 6960 resistance zone that has continued to cap gains since mid-February.

Any dip below the 20-DMA takes the price toward the rising trendline off the December lows, which may stymie any attempt by the bears to get this index to move lower. Beyond that lies 6800 as support, so we will need to witness a rather substantial shift in sentiment to put this index in a bearish frame of mind.

Watchers of the hourly chart will be keen to see whether the index can clear 6930 and the 200-hour moving average, which would certainly reignite the upside move in this index.

DAX eyes 11,460

The DAX tested the 200-hour MA yesterday and then bounced higher, confounding the top callers and providing fleet-footed dip buyers with another chance to jump on board the rally in this index.

All eyes are now on the 11,460 high from the beginning of the week – if Mario Draghi hints at a broader range of ECB measures, or does not suggest that the bank is considering curtailing its QE operations earlier than expected, then this particular market could find itself in fresh all-time high territory very quickly.

The four-hour chart shows the bullish crossover in the stochastic momentum index (SMI) that took place early yesterday afternoon. Taken together with the test of the rising trendline from mid-February, it seems like the bulls are back in charge.

Dow momentum indicators remain bearish

As with the FTSE 100, the Dow Jones tested its 20-DMA yesterday, but so far has not yet rebounded to the same degree. The daily relative strength index and SMI indicators are still bearish, with the latter yet to show the bullish crossover that eurozone indices witnessed on Wednesday.

A continued rally would still target the area above 11,350, while a failure to hold yesterday’s low at 18,030 would point towards a test of support around 17,900. Uncomfortably for longs, beyond this the next area of real support is the October trendline around 17,600. 

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