Levels to watch: FTSE, DAX and Dow

Yesterday’s price action lacked exactly that, with indices consolidating in the aftermath of some substantial moves last week.

Trader's screen
Source: Bloomberg

The speculation surrounding imminent quantitative easing from the European Central Bank remains a key factor and, while US indices had decoupled from their European counterparts at the start of the summer, there is a general sentiment that we are witnessing a catch up in equity valuation this side of the pond.

The consensus view out there is that QE worked in the US so it will work in the eurozone – the simple difference however is that the ECB is getting significant push back from the Bundesbank and, while a liquidity boost would certainly be bullish for asset prices, one questions whether a looser monetary policy without a common fiscal policy would have the desired US-flavoured effect.

The weakness in the oil and gas sector continues to be something of a thorn in the side of the FTSE bulls. With few expecting to see any intervention from OPEC tomorrow this trend could be set to continue but the mining sector is currently looking to compensate.

FTSE in short-term range

The 6773 level remains the area to watch today. The triangular consolidation has broken to the upside leaving the FTSE in a short-term range with the 100-hour moving average bringing support around 6720. The 200-daily moving average and the 200-H MA come in just below the 6700 level so one could expect that any dips back to this metric would provide an opportunity.

A break above the 6773 would target 6800, and 6830 in the near-term. The clear resistance that comes in at 6905 will ultimately provide a profit-taking area, certainly initially, but any break through this level, last seen in mid-September, would put the FTSE on course for a record high.

A move back through the 200-DMA would focus attention on the next support, around 6643.

DAX daily RSI extended

Any recent indication that the DAX was set to undergo a major correction has been nullified over the past few days, and as we approach the 10,000 level many traders will be looking for a chance to buy on any weakness. The daily relative strength index is certainly more extended into the overbought region than that of the FTSE.

Previous pullbacks have restricted themselves to 9840 which coincides with the 50-H MA. The bearish divergence on the same timeframe indicates that this index is likely to retrace back through the 9900 level, well in advance of any attack at the 10,000, especially given the intraday resistance at 9945.

18,000 less than 1% away for Dow

When one glances at the daily chart for the Dow Jones, one word springs to mind – parabolic. That being said, this bounce back in the US benchmark has looked that way for several weeks.

A raft of US data is due out this afternoon and, with traders and investors alike basking in the warm glow yesterday’s Q3 GDP number, it will be interesting to see if the more forward-looking macro data points stack up.

For now, the Dow is finding the 17,850/60 level a bridge too far and looks to trade in a tight range with 17,790 and the 100-H MA forming the base.

A move through the 17,850, preferably on a daily closing basis, would help garner additional media hyperbole – but 18,000 is less than 1% away from current levels.

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