European markets look to be bottoming out

With the threat of a trade war, US markets are showing little sign of bottoming out. The European markets could be the first to move, with the FTSE 100, DAX and Ibex all breaching or coming close to breaching key resistance levels. 

DAX
Source: Bloomberg

The global stock markets have been having a tough time of it lately, with rising bond yields, the threat of a global trade war, and rising rates driving a shift out of stocks. However, we are seeing tentative signs that this period of weakness could be over, and with traders keen to jump back into stocks, the recovery could be swift once we see a bullish break.

Key to this will be progression on the US-China trade issue, and with the tone softening between both sides, it is becoming clear that we are more likely to see a positive resolution than a breakdown in trade ties. However, the glimmer of light seen on the US-China trade issue has now been accompanied by a promise from Donald Trump to launch missiles into Syria, in turn heightening tensions between the US and Russia. This highlights the volatility and fragility of any market recovery in the near term. However, looking at markets, there is a clear outperformance amongst European indices, with the DAX and FTSE 100 coming close to a bullish breakout this week. With that in mind, are we seeing a bottom for European equity markets?

FTSE 100

The FTSE 100 has managed to break through a crucial resistance level this week, with the price hitting the highest level since February, after breaking above 7256. That could be a very telling move, with the break through the wider 76.4% retracement (7223) pointing towards a likely continuation of this rally towards the 7340 mark.

That resistance level will provide the crucial bullish signal if broken, yet we may not be there quite yet. By shifting the line from the February and March lows, it is clear that the highs seen this week have currently found difficulty breaking through that point (currently 7260). This adds another notable point of resistance up ahead, highlighting that for a wider bullish theme to come back into play, it would make sense to await a break through 7260 and 7340.

DAX

DAX has similarly come close to breaking out to the upside over the past week, with the price moving within touching distance of the crucial 12,477 swing high. Unlike the FTSE 100, we have not seen prices break to a lower low, with a support zone being formed.

However, with lower highs being formed, we were looking at a possible bearish descending triangle formation. This would be broken with a push through 12,477, providing increased confidence that we are seeing a bottom in play for the DAX. With the stochastic breaking above the peak from 20 March, we are now seeing the indicator fail to replicate the price for the first time in 2018. This could provide us with a clue that the momentum is pointing to a break of 12,477. Should that occur, we would be looking at a strong chance that the DAX has bottomed out.

Ibex

The Spanish index Ibex shows a very similar picture, with the falling wedge pattern highlighting a possible break of the lower highs and lower lows in place over recent months.

The key signal to watch for is a break above 9811, which has happened, albeit fleetingly. We have also seen the stochastic lead the way once more, with the break above 69 pointing towards a breakthrough that 9811 resistance level. With momentum looking like it could swing lower, there is a possibility we could see a move to the downside, given this clear respect of resistance. However, keep an eye out for whether we see any form of solid break and sustained price action above 9811, as this could be a key signal that we are due a recovery in the Ibex.

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