Levels to watch: FTSE, DAX and Dow

Europe has put its best foot forward on the first day of the new week, but the FTSE’s price action this morning has been lacklustre at best. Meanwhile, in the US, the shortened Thanksgiving week suggests we could be in for a low-volume few days, with the bulls still in charge.

European Union flag
Source: Bloomberg

Talk of European Central Bank quantitative easing is in the air, giving a big lift to European stocks, while a strong reading on the German IFO provided a pleasing companion to last week’s bounceback in the ZEW. Caution prevails ahead of a speech by the Bundesbank president Jens Weidmann, who may pour cold water on the euphoria generated by Mario Draghi on Friday.

FTSE continues upward trend

The steady upward trend for the FTSE is still in play, even if the index has retreated from Friday’s highs. It is now no longer overbought, but eager bulls should wait for an hourly oversold reading before piling in.

Having stalled at 6775, the support level for any dip becomes the 200-DMA at 6697, and then on to 6650, conveniently where the 100-DMA currently finds itself. Targets on the upside at present are a close above 6775 on a daily chart, followed by 6810 and then 6880.

Ideally longs would like to see a move back to the 200-hour at 6770, although such a textbook move so soon after Thursday’s even may be too much to ask.

DAX traders to watch 9890

Germany has certainly had the best of the gains from among the premier indices, but for those of a cautious outlook I can offer up the idea that the DAX is actually stuck on a potential third descending low.

The key point to watch is the September high around 9890. If the index cannot break through this on a daily basis then a new trendline that runs from the July highs is in play. This may conspire to drive the index lower, in which case with the daily relative strength index flashing overbought, first support may be around 9510.

The hourly chart arguably shows a rising trendline off last Monday’s lows, with a bounce from it on Thursday around 9390. A pullback to here would be an ideal buying point, if it materialises, so with the index overbought on an hourly timeframe bulls would perhaps want to wait for a drop back towards 9550.

Dow has positive outlook

Fresh intraday highs on Friday failed to hold, but that does not change the positive outlook here. While the daily RSI is now at extreme overbought levels, it seems not to bother the Dow Jones at present.

Any dip back towards 17,600 and then 17,550 would be likely to bring out the buyers, especially as Thanksgiving looms, while the index must now close above Friday’s highs of 17,894 (ideally closing above 17,900) to maintain the short-term trend.

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