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Levels to watch: FTSE, DAX and Dow

Indices held on to their gains following the European Central Bank meeting yesterday, but today’s non-farm payrolls mean that we are unlikely to see much activity in the morning session.

Women walking past charts
Source: Bloomberg

Mario Draghi managed to make all the right noises about an improving eurozone economy yesterday without dropping any hints that ECB quantitative easing is data dependent. The boost to economic forecasts was just optimistic enough, without tipping over into ‘blue-sky’ thinking.

Clearly, US job numbers today are going to keep most investors in ‘wait and see’ mode, but already it looks as if US markets are entering a short, bearish phase, and this may well drag Europe lower now that the ECB’s news has been fully digested.

6880 supporting FTSE

Even with yesterday’s excitement, a close above 6960 is still a step too far. Until this is achieved, the index remains stuck, even if a rising 20-day moving average and the still unbroken trendline from December continues to provide support.

A breakout above 6960 would target 7000 in short order and restore the bullish momentum, otherwise we look to support around 6880 and then 6800. The four-hourly stochastic index has surged into overbought levels once again, which could signal that a short-term turning point is near.

DAX remains overbought

The DAX was able to reach fresh all-time highs yesterday, but with the daily relative strength index and SMI both at overbought levels it seems difficult to imagine where the positive catalysts will come from to drive the price onwards once again.

Admittedly the DAX’s performance in 2015 has been designed to frustrate top callers, but with the price now 10% away from its October trendline the index does look overextended. On the four-hour chart the 20- and 50-period EMAs are still pointing higher, but like the FTSE 100 the SMI in this timeframe is looking overbought once again. Another bearish crossover in this indicator could signal a drop back to 11,320, the 50-period EMA, replicating the swift move we saw earlier this week, providing another buying opportunity for latecomers.

The 11,230 area is now the next support level on the downside, followed on by 11,000, but below this 10,600 and then 10,300 are the major areas where potential support can be found. Any dip is likely to be short-lived, especially now ECB QE is beginning to work its magic, but a sudden drop similar to December’s quick slump cannot be ruled out.

Dow momentum indicators pointing lower

Whisper it quietly, but there may be short-term dip already underway in the US. The RSI and SMI on the daily chart have been trending lower for some days now, although with the ECB and non-farm payrolls on the agenda many potential sellers have sensibly opted to await developments. However, if we see the 20-DMA broken on the Dow Jones then further declines towards the rising October trendline, currently around 17,600, may become a possibility.

Crucially the 20-period EMA on the four-hour chart is moving lower and threatening to stage a bearish crossover with the 50-period EMA. The price remains below both these averages, for the first time since late January.

On the hourly chart the price is struggling for momentum, and sits below all three major moving averages. A loss of Wednesday’s low of 18,050 will raise the prospect of further declines in the short term. 

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