Levels to watch: FTSE, DAX and Dow

From the reaction in equity markets, you wouldn’t think that quantitative easing was coming to an end today. Sharp rallies in the US last night saw indices in the UK and Europe open higher, despite some pre-Federal Open Market Committee jitters.

Data on a screen
Source: Bloomberg

Earnings have underpinned this bounceback in equity markets, with the rally still looking healthy as it heads towards the end of its second full week. Brenda Kelly has already highlighted the things to watch out for in the FOMC decision tonight, but broadly markets anticipate a fairly dovish outcome that acknowledges the headwinds facing the global economy.

A decline in the VIX to the year’s average around 14% illustrates how calm has descended on markets, allowing all equity markets to recover their bullish poise. However, it is the US that is likely to lead the way into the final two months of the year. The FTSE 100 and DAX have lagged behind, and continuing uncertainty around the eurozone economy will drag down the latter, while the unending underperformance of the mining sector will hold back the former.

FTSE eyes 6450

To say progress has stalled around the 6430 level for the FTSE would be to do the index a disservice, given that it has rallied nearly 6% off the lows of 16 October.

For now we await the outcome of the FOMC’s discussions, but a close above 6430 would certainly clear the way to additional upside, with targets around 6530 and 6560. Below this the targets remain 6290 and 6255.

Any move downwards on the intraday chart would target the 50-hour moving average at 6396 and then the 200-hour MA at 6356 while 6450, the high from Monday, is the first hurdle.

DAX could target 200-DMA at 9510

If the DAX can hold 9100 on the weekly chart then the bullish scenario is firmly back in focus. A close above here targets the area just above 9200 and then on to the 200-day moving average at 9510.

A rising daily relative strength index along with other momentum indicators suggests this is an upward move only likely to be moderately disrupted by the FOMC. Although overbought on the intraday chart, the index is looking healthy with buyers stepping in close to the 200-hour MA on Monday and restoring the upward trend.

Only a move back below 8900 restores the bearish outlook, with a target around 8680.

Dow awaits move to upside

The Dow Jones is now within an ace of recovering its upward trendline, which would really set the cat amongst the bearish pigeons. Having shaken off its weakness, the index has come storming back, and a close above 17,070 really would target the all-time highs from mid-September.

The hourly chart displays a textbook uptrend, with dips towards the 50-hour MA being ideal entry points. Although now overbought in this timeframe, it looks as if more upside is on its way. Dips back towards 16,890 would still be buying opportunities for the time being, with only a drop below 16,750 signalling that the rise has stalled for the time being. 

IGA, may distribute information/research produced by its respective foreign marketing partners within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

This information/research prepared by IGA or IGA Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

See important Research Disclaimer.