Levels to watch: FTSE, DAX and Dow

Another day of declines in Europe follows on from a lacklustre session in the US, although for the time being the respite for the bears is likely to be brief.

US trader
Source: Bloomberg

Today’s slew of manufacturing PMIs from around the world will drive sentiment. The day did not get off to a good start, with both Japan and China missing estimates, and then France following suit. Inevitably it is the German figures that will be crucial. Even so, Mario Draghi did not send any signals yesterday regarding a premature end to quantitative easing operations, so the buying pressure courtesy of the European Central Bank will be with us until September 2016 at least.

FTSE could reach 7044

Fresh record highs yesterday confirm that the bulls are still in charge on this index, while a dip below 7000 was swiftly bought yesterday. The upward momentum exemplified by the relative strength index and stochastics is still intact, so dips will still be bought in this market.

The hourly trendline from 13 March is still intact, coinciding nicely with the 50-hour SMA. A close above the intraday highs of 7044 will certainly reconfirm the bullish outlook here. Only a move back below 6950 would signal anything more than short-term weakness.

DAX eyes 12,200

As was the case on Thursday a test of the zone around 11,800 has brought out some more buyers for this index. It may have drifted along the March hourly uptrend but it seems there are still buyers waiting for dips in order to enter this market.

The last few days of rangebound trading are hardly a surprise given that the all-time high on this index was just over a week ago. We have seen such patterns before, usually before a fresh lurch to new highs. With the month-end looming and QE still in its infancy, we can expect a fresh run on the highs above 12,200 in due course. Crucially, stochastics on the four-hour chart are about to signal another bullish crossover, and if confirmed this will provide yet another opportunity for buyers to enter.

Dow looks to continue rally

Overnight weakness in US futures brought the index back towards the 20-period EMA, but once again it seems that there are still plenty of buyers willing to push this index back to all-time highs. The RSI and stochastics on the daily chart remain in bullish mode, and over the past two days dips below 18,100 have been bought.

A move back above the 50-hour SMA will confirm that the buyers are back in control, with an immediate target being the highs of Friday and yesterday around 18,200. Only a loss of the rising uptrend from October, or a close below 17,800, would really signal that the rally had run its course.

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