Levels to watch: FTSE, DAX and Dow

Yesterday’s remarkable rally saw indices recover much lost ground, with the S&P 500 enjoying one of its best days in a year. The shift from deep gloom to apparent wild optimism has caught everyone by surprise but the question now is whether the upward move can be sustained.

London Stock Exchange
Source: Bloomberg

Yesterday it was China and Apple that kept the atmosphere bullish, and this morning it is Yahoo that has carried the baton over. Treasuries are falling out of fashion, with the yield heading back to 2.2% from the lows around 1.86% last week, while gold is struggling to maintain the move higher that has carried it back to $1250.

Earnings season continues to be the main driver, with Boeing, General Dynamics and Ingersoll-Rand on the calendar today. So far earnings have beaten estimates by around 4.7% on average and a continuation of this would provide a rationale for further equity market gains.

FTSE steady rise continues

Although it is being nudged lower this morning, the steady rise from last week’s lows continues. For the time being the first target remains 6410-6420, with the move above 6300 yesterday signaling that the bulls still have the upper hand.

First likely support on an intraday basis should be found around the 200-hour moving average at 6300, followed on by the 6278 area around the 100-hour MA. The intraday relative strength index moved into overbought territory yesterday but the drop back will provide rationale for fresh buying once the indicator turns higher again.

Downside targets remain 6240 and then 6190.

DAX targets 20-DMA

The 8940 area is proving to be a tricky one for the DAX this morning, but overall the upward move is still likely to continue. A first target is the 20-day moving average at 9040 and beyond 9100 is a likely resistance level.

A weekly close above 8900 is still needed to dispel the idea that this market is headed lower in the longer term, but the bullish crossover of the 50-hour MA with the 200-hour will have sent a signal that further upside is likely. First line support is possible around 8820 and then 8760.

Dow RSI supporting gains

Yesterday’s recovery of the 200-DMA underlines how big the bounce has been for the Dow Jones, and while for the moment the index is not being particularly energetic about gains above 16,600, a steadily-rising daily RSI is supportive of further gains.

Further upside moves will target 16,710 and then 16,800, while a drop back would look towards 16,420 and then 16,330, with a possible intermediate line in the sand around 16,380.

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