Indices outlook: FTSE 100, DAX and S&P 500 aim for a recovery

​FTSE 100 reverses recent losses

After two days of losses the index recovered yesterday, stabilising around 7550, stemming the flow of losses to the downside that had seemed to pose a risk of a bigger pullback following the break of trendline support.

This morning has seen the index open higher, with the 7600 high from yesterday acting as a possible hurdle in the very short-term. Beyond this the buyers will look to the April highs that saw the index almost reach the previous February peak at 7680 and 7700.

The index appears to be supported by its contingent of banks, oil stocks and mining companies, with the latter two aided by the rise in commodity prices, the element that has driven so much inflation of late.

Meanwhile yields, although softer yesterday, continue to rise over the medium-term as investors look towards further tightening from central banks, boosting profitability for banks thanks to higher interest rates.

Sellers will want to see the price reverse the gains of the past 24 hours, and push below 7550 to open the way to a deeper retracement, initially towards 7450 and then the 50-day SMA simple moving average, currently 7442.

DAX looks for bounceback after losses

The DAX's gentle pullback has come to rest around 14,000, with losses slowing over recent days.

Crucially, much of the recovery from the March lows is still intact, and a potential higher low here, even one below the 50-day SMA, would do much to restore optimism among trend traders.

They had watched nervously to see if the lower high at the end of March near 14,840 would mark the start of another big move to the downside, but while the index sustained losses, a full on retracement of the March bounce seems unlikely at present.

Concerns about the Russia-Ukraine conflict have hit European indices hard, more so than the FTSE 100 for example, and fears about slowing growth have also played a part.

Overall there is still a lot of work to be done before the index can be said to be in full recovery mode, but a recovery above 14,250 would help to reassure buyers.

For sellers, the price must reverse the small gains of the past two days and move back below 14,000, and then through 13,850, in order to open the way to further declines that will erode more of the gains made since the March low.

S&P 500 recovers above 50-day SMA

The index has stabilised above the 50-day SMA after yesterday’s rebound, beginning hopes of a recovery that can build on the apparent higher low that has been established.

US CPI this week was only as strong as expected, and did not break forecasts to the upside, and with some very early signs of a slowdown in price growth in some sectors there is hope that inflation might begin to moderate.

Earnings season began yesterday with JPMorgan kicking off reporting season for the banks, and while the update was fairly cautious, noting the risks to the economy from inflation and higher interest rates, it was insufficient to drive the index lower.

Those looking for further gains will hope that the index can sustain yesterday’s bounce and move higher, putting the late March high at 4630 into view once again.

A bullish crossover in stochastics and then the moving average convergence/divergence (MACD) would also likely bring more bullish flow into the mix.

Sellers will look for a reversal that takes out 4390, and opens the way to additional losses in the direction of the March low.