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It shows how used we have become to a steady march higher when yesterday’s modest down day provokes a flurry of suggestions that a correction is underway.
The macro background has hardly changed in the past week, and the surprise rate cut from the Indian central bank should, if anything, make life more amenable for equity bulls. Nonetheless, the rally seen so far in 2015 does look more tired than it has for some time, with indicators pointing towards exhaustion for the time being.
FTSE finds support at 20-DMA
We can safely say that, whatever the FTSE 100 does, it must break 6950 to maintain the upward move. A drop back has resulted in the index finding support at the 20-day moving average, perhaps providing grounds for a repeat of action earlier in the month when this indicator served as support.
A further modest dip today takes us back to the rising trendline off the December lows, while a close below here still targets 6800 and then the rising 50-DMA at 6730. The daily relative strength index has dropped below its lows for the month, while stochastics have shifted to a bearish stance on the daily chart once more.
The entry of buyers around 6880 yesterday might signal that there is still some appetite for another move higher ahead of this week’s key events, the ECB meeting and Friday’s non-farm payrolls.
DAX resistance at 11,330
For the moment the index is holding above 11,300, having briefly dipped below here yesterday. As with the FTSE, yesterday’s dive brought out buyers, with an hourly oversold reading providing the catalyst here.
Immediate resistance sits around 11,330, followed on by the peak of 11,450. A suitably dovish ECB would hand victory to the bulls, but that event is still over a day away.
We can see momentum indicators like the RSI rolling over once again, although on the four-hourly chart the 50-period exponential moving average (EMA) remains untested, while a steady rally off the 10 February low is still in place. Further support could be found around 11,100, while only a move off the 20-period EMA below the 50-period would really signal a change of trend was in the offing.
Dow returning to key support
We are seeing the Dow Jones pushing back towards key support at 18,150, which has held since 24 February. A rising 200-hour MA is entering the frame too, lending credence to the theory that this is not the beginning of a more serious correction.
We have, however, seen the first bearish crossover in the SMI since late January, which normally prefigures new moves lower. If the price does weaken then the 20-DMA is a first port of call, followed by 18,000/the 50-DMA.
The 18,270 area, the high of the week, followed by the rising ceiling at 18,370, are the levels to watch on the upside.