Levels to watch: FTSE, DAX and Dow

The new week is getting off to a strong start for equities, which are evidently keen to put last week’s gyrations behind them. 

Japanese traders
Source: Bloomberg

Hints of Chinese monetary easing are working their magic this morning, after the governor of the People’s Bank of China (PBoC) warned about the risks of disinflation. As I noted last week, the end of the month and the quarter should put traders on alert for increased volatility.

FTSE targets resistance at 6960

For the time being this index is finding support at the 50-day simple moving average (SMA) at 6864. A close below this mark might find some brief support around Friday’s lows of 6840, but then beyond this a test of 6800 cannot be ruled out. Should this level be breached then we look to the 200-day SMA at 6690 for additional support.

On the upside, the index needs to clear resistance at 6960, before testing its all-time high above 7000. For the moment the picture looks a shade more bearish than bullish, with daily stochastics still negative, but today’s turnaround in the daily relative strength index (RSI) might signal a possible turnaround if the index can hold today’s gains.

DAX buyers taking control

As ever, the strength of the DAX is never to be underestimated. Crucially, the index finds itself breaking out of the downtrend on the four-hour chart, and with the daily RSI moving above its 10-day moving average it looks like the buyers are re-establishing control after several days of consolidation.

Should this move higher be confirmed with a bullish crossover in daily stochastics then the bears’ brief dominance here has come to an end, and the index will then be looking at making a run to the all-time high of 12,220 and beyond. Once again the 14-day exponential moving average (11,848) has held as support, with dips below this still being bought. Only a close below 11,800 negates the current move upwards.

Dow Jones eyes 17,856

US indices will not have failed to notice the move higher in the UK and Europe, and it may be that the brief sell-off of last week has run its course. The second October uptrend line, which I referenced on Friday, continues to hold, with buyers entering last Thursday and continuing to stem the downward move.

The Dow's first target is a close above the 50-day SMA (17,856), which would easily restore the bullish outlook. The RSI is moving upwards as well, moving back above its 10-day moving average. This indicator tends to lead the stochastic momentum index, so a confirmation from the latter that the dip has ended should be seen as a possible buying signal, for a test of last week’s highs around 18,200, before moving on to the all-time highs of 18,255.

A break below the aforementioned October trendline would negate the bullish move, leading to a test of the 200-day SMA at 17,355.

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