Levels to watch: FTSE, DAX and Dow

After a wobble yesterday markets have begun to recover, with a late-stage recovery in the US yesterday and a strong showing in Asia overnight helping to maintain the positive atmosphere.

Frankfurt stock exchange
Source: Bloomberg

Yesterday’s price action saw a slump in Europe that was not mirrored in the UK or the US. Reports of fresh Russian movements in Ukraine are always likely to cause a DAX selloff, but UK and US indices usually remain calmer about the situation.

The light macro calendar continues to be both a help and a hindrance. A help in that it allows rapid gains for indices, but a hindrance in that these gains may prove transitory if they are not built on a firm foundation of fresh news.

FTSE gains checked by 6640

Like other indices, the FTSE 100 left its hourly trend behind some days ago, but continues to test new highs. The 6600 level provided a barrier for a time but is now doing well as support. The 6640 level has become the latest possible hurdle, with gains today so far held back by this level. Meanwhile, the 100-hour MA provided good support yesterday, combined with an oversold reading on the hourly relative strength index.

The daily chart still seems to indicate further upside is on the way, with potential resistance at the 6670 and 6690 zones. The daily RSI has yet to touch overbought levels, and even if it did recent experience in US indices teaches us that an overbought reading does not necessarily signal that a decline is in store.

Support on the daily chart is to be found around 6560 and then 6500, with the 50-day moving average also providing some potential buying opportunities.

DAX RSI moving lower

The steep drop yesterday did give the bears some more strength, with the index seemingly unwilling to push beyond the 100-DMA. The daily RSI has begun to move lower, although not dramatically, while the SMI is continuing to indicate weakness, although it is not yet indicating a definitive sell signal.

A close below 9200 would signal a test of 9150 and then 9015, while the index must first hit the 200-DMA and then move on to 9800 if it is to maintain the rally.

The hourly chart is seeing a potential bearish crossover of the 50- and 200-hour MAs, although buyers continue to defend 9200, as we saw yesterday. A definite positive sign would be the recovery of the hourly trendline above 9400.

Dow supported by 17,535

The US continues to lead the way in this rally, with the Dow Jones, S&P 500, NASDAQ 100 and Russell 2000 all in overbought territory on a daily chart but seeming not to care.

The distance between the price and the 50-DMA continues to increase, being at 3.87% at the time of writing, but even this does not seem to bother the index at present.

On the hourly chart, the index left its hourly trend behind at the end of last week, but it has continued to make gains, albeit in a much more modest fashion than was the case at the end of October. With the 50-hour MA flattening out, we may see a bearish crossover with the 200-hour simply by virtue of having the latter catch up with the former.

The 17,535 level and then 17,440 are immediate support zones, and beyond that the index could find buyers at 17,300.

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