Indices struggle as bullish sentiment fades
Hopes of further gains are weakening, as the bounce from Thursday’s low starts to run out of steam.
FTSE 100 bounce stalls
From Thursday’s low the index was able to bounce some 300 points, recovering 7500 briefly yesterday as global risk appetite rebounded for a second day.
This for now has averted the potential for a bigger pullback, although the broader macro environment still suggests that a risk-off mentality prevails among investors.
Hopes of a warming in relations between the US and China were raised yesterday when President Biden said he was considering easing tariffs on Beijing, helping to lift the FTSE 100’s mining sector.
However, the rebound yesterday carried the price to trendline resistance stretching back to the April high, which has so far managed to stymie rebounds since then. Lower highs have been created here several times, and if a full-blown reversal develops today then the bearish view remains and a move back towards 7200 could develop.
It will require a move back above 7550 to clear trendline resistance and the lower high from last week.
DAX stuck below 50-day MA
Hopes of continued gains here were dealt a blow as the euro strengthened following European Central Bank (ECB) president Lagarde’s comments that the bank would look to raise interest rates out of negative territory. This bolstered the euro, and resulted in gains for European indices being trimmed. The turn lower for US markets overnight has taken the wind out the rebound.
The 50-day simple moving average (SMA) continues to act as resistance, and a reversal here would bring Thursday’s lows at 13,685 into view, and mark a resumption of the downward move in place since February.
Weakness over the past two days has dimmed the potential for a further bounce, but it will need to clear 14,270 to open the way to additional upside. This will also end the run of lower highs for now, another bullish development.
S&P 500 heads lower
Monday’s bounce stalled after hours following results from Snap that disappointed investors and put pressure on the tech sector. Investors are now wondering whether this is a sustainable bounce or whether it will go the way of others and result in a fresh move to the downside that results in a test of the recent lows.
While arguably overstretched in the short-term to the downside, the index could see further declines, bringing 386 and 3692 into view once again.
Any sustained bounce needs to clear 4000 to open the way to additional upside.
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