FTSE 100, DAX and S&P 500 enjoy continued rally
Stocks have rebounded of late, bolstered by hopes that the Fed might pause its tightening efforts later in the year.
FTSE 100 aims to build on recent gains
Gains over the past week have carried the index back towards 7600, with a rebound in global risk appetite coming after weeks of losses for US markets.
The FTSE 100 has, by contrast, been relatively less hard hit, although it still lost some 450 points from the April high.
The late April/early May bounce ran out of steam at 7600, so it will be vital for this bounce to push on beyond this if it is to challenge the April high at 7670.
In the event of a reversal we look for the index to test the 200-day simple moving average (SMA) at 7334 and then the 7200 area, which marked support at the beginning of May.
DAX breaks trendline resistance
Yesterday’s bounce resulted in a move above the 50-day SMA (14,126) plus a push through trendline resistance from the February high. This has brought the index back to the highs of the month, around 14,280, where gains have stalled.
Given the shift in sentiment in recent days a further rally could follow from here, fuelled by expectations that the Federal Reserve (Fed) might look to pause its tightening efforts after the summer in order to assess its impact on the US economy.
Further gains from here will target the April high at 14,600, while a longer-term move higher brings the late March peak at 14,930 into view.
Sellers will be on watch for a reversal back below 14,000, which will also put the price back below the 50-day SMA and trendline resistance, and would then suggest that a resumption of the downtrend since February is now the base case.
S&P 500 rebound makes headway
Over the past week the index has clambered higher, recovering the ground lost in the slump during the middle of the month.
Once again investors are looking to drive a relief rally after weeks of losses, fuelled by hopes that the Fed’s tightening policy might pause after the next two meetings. Earnings season is also winding down, which at least reduces the potential for any unpleasant surprises from US corporates.
Should gains continue then 4097, the high from mid-May, remains the initial target, and then on from there towards the 50-day SMA at 4275.
After the volatility of the past month, investors will be on watch for any reversal, with a return to the downside bringing 3900 and then the May low at 3810 into view.
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