Last week we saw a hefty rebound in indices, chiefly driven by US earnings from such giants as Apple, Caterpillar and Boeing, while the dip buyers booked out several buses in order to return to the markets in force.
Stress test results from the eurozone have produced few surprises, with 24 banks failing the tests and 14 still to raise capital. For now, however, the apparent rigour with which the tests were conducted is providing markets with reasons to move higher.
Looking ahead the big event will be the Federal Open Market Committee announcement on Wednesday, which will provide an excuse for some bulls to close down positions ahead of the event. Broadly the expectation is still for a final end to QE3, although some banks have suggested that the Federal Reserve might cut the number to $5 billion as a sop to volatile markets.
FTSE upside scenario intact
Early upward momentum has dissipated but the short-term trend is still one that points towards additional upside. Gains so far have stalled around 6455, but so long as the index remains above 6420 there is still the likelihood that we will see gains towards 6465 and then 6530. Below this on the daily chart the index looks to 6292 and the 6255 as short-term targets.
The hourly chart is indicating another dip towards the 20-hour moving average at 6406, followed on by the 50-hour at 6400. Moves in this direction have hitherto been bought, so the upside scenario is intact for now.
DAX RSI steadily moving higher
A morning spike towards 9100 has been pushed back, although we should be wary of calling a top here. The DAX has moved through the 20-hour MA, and while the daily relative strength index has flattened out slightly it is still marching upwards.
A move through 9100 would head towards 9145 and then 9350 as potential targets, while short-term weakness would see a test in the direction of the 50-hour around 9007 and then 8950, with additional moves lower pushing towards 8850.
Dow rally still secure
Having recovered 16,800 on Friday, the rally in the Dow Jones still looks fairly secure. Targets on the upside now become the 50-DMA at 16,905, while above this the rising trendline from the 2011 lows sits around 17,060 and would be a natural destination.
The 16,700 level and then the 200-day at 16,595 become immediate targets if we see weakness in advance of the FOMC on Wednesday, but the daily RSI has continued to shift higher, moving through the key 50 mid-point.