Technical analysis: key levels for FTSE, DAX and Dow

Indices have enjoyed an excellent week, rising like phoenixes from the doom-laden atmosphere of last week. 

A man next to the DAX logo
Source: Bloomberg

Once again, the bears have been confounded, particularly by the ‘bad news is good news’ narrative that has developed in the eurozone this week.

FTSE could retest 100-DMA

The FTSE 100 is set for its best weekly gain in six months, after a period in which many thought the long-hoped for correction was finally underway.

At the time of writing it is once again poking its head above the 200-day moving average for the first time since the beginning of the month, a very strong sign that shows once again that this rally is not to be trifled with. Assuming a close above here, the way opens towards a retest of the 100-DMA around 6750, which is also where the 50-DMA is currently to be found.

A break through here would put the 6800 level back in focus, and with the relative strength index moving higher there seems confidence that we could see this level in short order. We have seen a 1.9% move since the closing level of 8 August – a similar move would take us back to the 6840 area.

Crucially we have recovered the long-term uptrend as well, and this should provide support around 6710 on the downside if the new week opens with some selling.

Daily RSI and MACD supporting DAX

The DAX is now pushing firmly above 9200 once again, supported by a rising daily RSI and moving average convergence/divergence. Eyes now turn to 9400, with the 20-DMA before that perhaps providing some resistance.

A close above 9400 would mean the DAX has moved back above its long-term trendline, which runs from the latter part of 2011.

As Brenda noted yesterday, the 50-hour MA is doing its best to provide support, so any dips back in the direction of 9200 should be bought, particularly since the hourly trendline from 8 August is also around that area.

Dow targets 16,800

The bounce in the Dow Jones is still going strong, with the daily RSI moving above the 50-mid point for the first time since mid-July. Having rebounded off the 200-DMA, moved through the late-2011 trendline and pushed above the 100-DMA, the index certainly looks in robust health.

Upside targets are now 16,800 and then the 50-DMA at 16,850, with a close above here setting the index up for another attempt to breach the all-time highs above 17,000.

On the downside, a drop back to 16,600 would still not endanger the upward move, so long as the trendline from October 2011 holds. Below 16,600 the 16,400 level comes into play once again.

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