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Levels to watch: FTSE, DAX and Dow

We have seen a slow session develop into more solid gains so far this morning, helped along by a bounce in the oil price that has allowed a few of the more oversold names in London to find their footing.

A man looking at a chart
Source: Bloomberg

Last week ended with a further bout of heavy selling, but the new week has begun with a more optimistic outlook. The dive to 2000 on the S&P 500 certainly brought out the crash-callers, and while this index (just to take one example) lost five weeks of gains in just a single five-day period, it had rallied around 12% from the closing low of October.

Shinzo Abe’s victory in Japan over the weekend has raised hopes of more stimulus in that economy, while the Federal Reserve meeting will be watched for any indication it is about to remove the phrase ‘considerable time’ from the language of its statement.

FTSE eyes 6350

The climb off the lows from last week has seen the FTSE run back towards its hourly downtrend line from last week. The first target for the index will be to clear its way through 6350 and then on through Friday’s high at 6440.

Having touched oversold levels last week on the daily chart the index is now clawing its way higher. It would be unwise to suggest that the end-of-year rally is underway, but the week has begun in the right way. The 6200 level remains as support on the downside, although a close below this targets the lows of October sub-6100.

DAX returns to 200-DMA

The steady dive last week has carried us back to the 200-day moving average once again, but this indicator is holding for now. Unlike the other indices the DAX did not skip into oversold territory, which is mostly due to the absence of major oil names in its composition. If the 9530 zone continues to hold then the first target on the upside is 9740, then 9840 and on to 9900.

On the downside a breach of 9530 would send the index back in the direction of 9410 and then 9200. The coming period of volume-light trading will likely lead to rapid moves, but the bias of seasonality still points to the upside.

Dow moves out of oversold region

US futures have steadily recovered since Friday’s beating, and the Dow Jones has surged out of oversold levels once more. We await confirmation from other momentum indicators but the picture looks more optimistic.

The first target is 17,600, with a close above here in coming days pointing towards a rally in the direction of 18,000. Meanwhile, on the downside there is still the possibility that the index will dive towards 17,000 and then 16,870. 

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