Article / 21 July 2016 at 15:11 GMT

Equities looking strong on both sides of the pond

Technical Analyst / FuturesTechs
United Kingdom
  • Dax has recovered from weakness earlier in the week, looks to go higher
  • Scales have tipped from bullish to neutral for British equities
  • S&P 500 and Dow make new all-time highs

Blue sky
 Nothing but blue sky, as new all-time highs put the Dow in uncharted territory. Pic: iStock

By Clive Lambert

The last year has seen varying fortunes for equity markets, depending on which side of the pond you look.

The Dax (I look at the front-month futures across markets) topped out in April 2015 at 12,429.5 and has since retreated all the way back to 8,690.5 in February this year. We then staged a decent recovery, getting up to 10,522 by this April, recovering almost half of the losses seen from the highs.

The last month has seen a big drop to 9,152 on "Brexit day", then a solid recovery, having printed 10,189 today. I expected to see sellers returning at these current levels since we filled the gap created by that nasty reaction to Brexit, and also because we have the 200-day SMA sitting around here. However, after some weakness on Monday and Tuesday, we've once again seen a recovery, and it looks like we could go higher, targeting 10,340, 10,375, then 10,522.

We would only back the bears once more on a break below the strong supports at 10075, 9910 and 9,870.

The Eurostoxx 50 chart looks less impressive (if you're bullish) longer term. It left a gap on the "Brexit Friday" open at 2,978. This was Monday's high -- to the tick. And we've failed here again today. So this is causing trouble and gives the bears something to shout about. If we don’t get above here, but sell off and take out 2,903, we’ll get a (double top) sell signal. 

The FTSE has done the best on the recovery since Brexit.  Interestingly, the low on that day was around a big Fibonacci support at 5,700. That’s a foggy memory now though, as we’ve put on close to 1,000 points from there. 

However, the last seven candles have all been what us candlestick watchers call “high wave”, ie. they’ve all had small real bodies. The real body is the difference between the open and close. So, if this is small, it essentially says “no one won today” in the perpetual battle between bulls and bears.. These sorts of candles often portend a reversal, as they’re telling us that the market has gone from being bullish (buyers outweighing sellers) to neutral (buyers and sellers equal); a tipping of the scales, as it were.

I have been waiting for a correction lower on this basis, but so far, it hasn’t come. The trigger level could be 6,558, with other supports below that at 6,370-6,400, then 6,300.

On the other side of the pond, the Dow and S&P 500 are making new all-time highs almost daily and, as I mentioned last week, there are a few “runaway gaps” appearing, suggesting things may be getting just a little “frothy”. So far though, we haven’t seen any signs of an awakening from the bears, so we’re not suggesting betting against things. 

The S&P’s latest version of a new all-time high (ATH) was a 2,170 print overnight. We have a “big” Fibonacci target that we’ve been talking about for a while now, just above here at 2,177. 

The Dow futures made a new all-time high when it gapped higher last Thursday. The previous ATH was set last May. We have now reached 18,565, and our next upside target (again using Fibonacci extensions as a “guide” because in effect there is no resistance up here, as we’ve never been up here before) is 18,896.

The NASDAQ hasn’t reached its ATH yet, as this was a 4,884 print back in 2000, which marked the top of the dotcom bubble (don’t worry, it’s different this time -- they always say that, though). In fact, the NASDAQ 100 future is still shy of its high/failure from last December, which is 4,739.50.

For now, the old mantra of “the trend is your friend” seems to be the best thing to apply. Continue to back the bulls until you get some solid evidence that things have turned around, because right now, what we’re seeing is dips being bought.

– Edited by D. Deacon

Clive Lambert is chief technical analyst at FuturesTechs


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