Levels to watch: FTSE, DAX and Dow

Whether you define a Santa Rally as the market movement between Christmas Eve and the New Year or any upside moves within late December, it would seem that we are amidst the much talked about phenomenon. 

London Stock Exchange
Source: Bloomberg

The recovery in equity indices has been practically unbelievable and with thin trade and little data in a shortened trading week, we may well see markets float higher still from here.

Much of the upside this morning, particularly in the FTSE, can be attributed to the temporary bottom that we are currently witnessing in oil prices. For now, it seems that the $60/bbl marker is holding – but it must be remembered that similar ‘bottoms’ were called when Brent was trading at $98, $95, $80 and $76 so you’ll forgive me if I don’t share today’s enthusiasm over the longer term from a fundamental standpoint. The rally in the rouble is also helping risk appetite.

FTSE eyes close above 6650

With price action back through the rising trendline from the March 2009 lows, it seems that the upside will prevail for the FTSE. Having pushed through 6515, the index has shown little hesitation in rising through 6600, finding some resistance at the 100-day moving average.

A daily close through here would target 6650, a recent area of congestion and then the 200-DMA currently residing around the 6680 level. It seems unlikely that the index will end the year at, or near its record high recorded in late 1999 around 6930 given that geopolitical issues still remain – but we certainly cannot rule it out.

As it stands, the Fibonacci extensions from the December 15 lows implies that we could see the 6720 level as long as the 6600 level remains supportive.

Below that lies 6550, then 6512.

DAX supported by 9770

Taking the Fibonacci retracements from the highs of 10,113 to the recent lows around the 9216 level, it would seem that the upside should also be sustained for the DAX. Price action remains supported by 9770 (61.8% retracement) and while above this there is an argument for a test and break of the 9900 level.

The 50-hour MA at 9800 is supporting in the intraday, and the rising relative strength index on the same timeframe supports the move. A break above the 9940 area would target 10,000.

Below the 9769 level could see the DAX break lower towards 9670.

Dow close to record high

If possible, the Dow Jones looks the most bullish and lies a mere 0.7% below its record high set on December 5. Bear in mind, the US index never so much as peeked at is long-term trendline from the March 2009 lows, so it would appear that the 18,000 level may once again be revisited in the near term

Staying above the 17,715 level is important however. The rising support from the 50-hour MA at 17,752 should hold any downside if we see any retreat below 17,790.

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