Levels to watch: FTSE, DAX and Dow

The mixed picture on global markets continued last week, but it seems as if a bounce may be in the making in the UK and US, while Europe still looks robust.

A man looking at prices on a board
Source: Bloomberg

The week will be dominated by the Federal Reserve meeting on Wednesday, and the speculation surrounding this has already moved into overdrive. However, equity bulls have already been given a shot in the arm by China, where Premier Li Keqiang hinted at further policy accommodation to boost growth. With the Russell 2000 small cap index having already bounced and begun to move higher, and Europe still looking strong, it is now time for the UK and US to play catchup.

FTSE targets move through 50-DMA

The key task for the FTSE 100 today is to break through the 50-day moving average. It has managed to move further away from the 200-DMA and 6700, where it found support last week, and now needs to capitalise on this with a clear daily close above 6770.

Immediate targets on the upside should this break higher occur lie in the direction of 6870, and then on to 6960. The relative strength index and stochastics have also moved higher, with a possible bullish crossover materialising in the latter.

Momentum looks to be stalling on the hourly chart around 6680, with a target of 6800, the high from Thursday, as the first port of call in any continuation of this move higher. A dip below 6700, the lows of the past week, would reignite the move to the downside, with a first target of 6620.

DAX continues to set new highs

Record highs have become an almost daily occurrence here, with today being no exception. The same conditions apply as on Friday, namely an overbought RSI, a stochastic reading at extreme levels and plenty of clear water between the price and the 20-DMA. This parabolic move seems to have little stopping it, with pullbacks simply being a chance to hop on board this particular train.

Ideally we would like to see a pullback to the 50-period EMA on the four-hour chart, repeating the pattern seen in previous weeks. Even a dip back to the 20-period EMA might take some hot air out of the market.

Crucially we are now over 1000 points away from the 50-DMA. A drop back to here would constitute a technical correction, and yet this could happen without seriously impairing the longer-term trend here. Only a move back towards 10,500 really eliminates the sunny outlook here, as European Central Bank quantitative easing continues to supercharge eurozone stock markets.

Dow traders pensive ahead of Fed meeting

Two bounces off rising support from the October lows seem to confirm that buyers are back in this index, although caution will still likely remain the dominant theme ahead of Wednesday. A close above the 50-DMA today would, like the FTSE 100, reignite the move higher, with a target of the 20-DMA just above 18,000 and then on to the March high above 18,200.

However, this move is likely to go beyond this, heading on to 18,400 as the index looks to test the rising resistance that held it back in December of last year. A drop lower from here encounters another possible trendline from the October lows around 17,580, while the 200-DMA remains in the background as major support at 17,300.

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