One last spike higher in the stock markets before the next shakeout?
Last week I wrote that the stock markets should stabilise after finding good support and that there were probably too many short positions in the market that needed to be squeezed out. The E-mini S&P has since pushed higher as expected and re-tested the 1 February high at 1940. On Monday we made it as far as 1943 and, although the market has become overbought, I still see a chance we can make further gains into the end of the month.
If we can just break through the 1940/1945 area we should be able to target 1955 and possibly make it as far as strong resistance at 1970/1975. This should be enough to squeeze out any of the last weak short positions. It could also be enough to encourage some of the bigger funds to unload some of their positions in the face of a slowing global economy.
At around 1970/1975 we would only be about 160 points or 8% from the all-time high. Not a huge amount when you consider how gloomy some of the predictions are for corporate earnings and economies across the world. We should be pretty severely overbought at this stage with quite a few different levels of resistance up there, including the one-year upward sloping trendline that you see in the weekly chart below.
Even just above here we meet a lot of resistance in 1995/2005 area, so anywhere within this 35-point band seems like a good place to unload long positions and perhaps try shorts to see if the negative sentiment returns.
E-mini Dow Jones is of course higher with the E-mini S&P and, if anything, has performed a little better, as we hover above the early February highs now. Although overbought, I’m looking for a push up through 16,650 to target 16,800 and maybe make it as far as 16,930/16,980.
I am really hoping that we can make it this far because this looks like a golden opportunity to sell into short positions. We have further strong resistance up at 17,200, so I wouldn’t be concerned about my shorts unless we were to start to break above this level. Keep an eye out for this 250-point resistance area if we start to rally before the US non-farm payrolls number next week.
The DAX 30 has been underperforming the US markets and has been in a bear trend for almost a year now. We made it to our first target and resistance in the 9530/9570 area and have come to a halt.
You can see in the daily chart above how we are becoming overbought. In a bear trend this often signals the return of the sellers, but I do think there is a chance we can break up through here eventually this week and maybe make it as far as 9780/9800.
In the weekly chart below this is where we run into the lower trendline of the big triangle pattern that formed from late 2014/early 2015. You can see we broke out of this triangle to the downside at the end of January and saw accelerated moves to a low of 8690. A re-test of this lower trendline could give us a nice selling opportunity in the bear trend.
I will end with a look at the FTSE 100 futures, a market which saw a very good bounce from a low of 5448 up to a high on Monday 22 February at 6038, a rise of 590 points, or nearly 11%.
This is a very respectable bear trend bounce, as we approach the February high at 6070. It also just happens to be a 38.2% recovery of the whole bear move down from the highs in April 2015, and coincides quite nicely with the 100-day moving average, just above at 6100.
So we see strong resistance therefore in the 6070/6100 area and it’s quite possible that the bear trend will resume once we approach this level.
Technical Analyst & Trader
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