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European and US indices have stormed higher today and look set to end a difficult week on a positive note. But as we approach the first quarter earnings season it is worth looking at a few charts to see how healthy the outlook is for equities.

Here’s a daily chart of the Dow with a Fibonacci retracement drawn on between last year’s high in May and the low hit in August (which followed the first bout of China-inspired market chaos):



As we can see, the Dow is attempting to breakout above the 0.76 retracement of the move around the 17,600 area. If successful then it looks likely that it will attempt to take out last year’s high around 18,300. A failure could lead to a substantial pull-back. As things stand it is within 4% of this level.

It’s a similar situation for the S&P500. The main difference is that the low point for the Fib retracement was hit in February this year – just after the second round of China-inspired market chaos:



The S&P is also attempting to break above the 0.76 Fib retracement around 2,060. If it does, then it too could head back towards its high of May last year around 2,140 (again less than 4% away). However, there may be some resistance at the downward-sloping trend line which currently comes in around the 2,080 mark.

But it’s a slightly different picture for the FTSE100.



The UK index is about 13% below its high last year so it will struggle to take this out anytime soon.

A look at the four-hour chart shows how the index has been stuck in a relatively narrow trading range since the beginning of March. It has to break decisively above 6,200 to get some positive momentum on its side.




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Posted by David Morrison

Tagged: Bulletin PM

Category: PM Bulletin


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