​FTSE 100, DAX 40 and S&P 500 on track for further gains

​​FTSE 100 two-day rally has further to go

The FTSE 100 has rallied by over 4% from its September low in the wake of stronger US and Asian equity markets on the back of hopes of a slowing tightening path by the US Federal Reserve (Fed) after softer US economic data.

The break through its September-to-October downtrend line has put the early September low at 7,131 on the map which, together with the 8 September low at 7,174, is likely to act as short-term resistance.

After a swift and large two-day rally as the one which has been seen so far, it is usual for equity indices to take a breather, at least in the short-term.

In case of the FTSE 100 the June and July lows at 7,006 to 6,966 may thus be revisited but are expected to offer solid support.

DAX 40 stalls after 6% two-day rally

The DAX 40’s swift ascent on hopes of a slowdown in the speed and size of global rate hikes following the Reserve Bank of Australia’s (RBA) unexpected 25 basis point rate rise, half of what traders expected, on Tuesday is likely to pause in the short-term.

Following the contract’s technical bear trap – in which it dipped below its key March to July support at 12,386 to 12,432, only to then rally by over 6% so far this week and close above this area – a slowdown in recent bullish momentum is likely to be witnessed on Wednesday.

Any potential retracement back towards the 12,432 to 12,386 support area may represent a buying opportunity for short-term investors as the index likely has further to run.

Upside targets are the 23 June low at 12,839, followed by the mid-June low and 20 September high at 12,940 to 12,944. The next higher 26 July low, 2 September high and 55-day simple moving average (SMA) at 13,021 to 13,066 may also be reached in the days to come.

S&P 500 makes fresh gains

A sharp drop in job openings in the United States on Tuesday was interpreted by market participants as pointing towards weakness in the employment market of the kind that the Fed had suggested would cause them to rethink their plan for further sharp rate increases.

The S&P 500 thus built on its previous day’s sharp rally and managed to rise and close above its 28 September high at 3,737. This is technically significant since it confirms that at the very least a minor bottom has now been formed with its upside target coming in at the early September low and 20 September high at 3,884 to 3,918.

In case of a minor retracement lower taking shape this week, the July low and 6 September high at 3,737 to 3,720 should offer good support.