With indices forming minor bottoms is there a chance that their descent has ended?
We will analyse what the technical picture has to say and what possible downside targets would be triggered by a fall through recent lows.
Hopes that the Russians and Ukrainians may still come to an arrangement amid ongoing negotiations have helped European and US equity markets get out of the rut, at least short-term.
With Ukrainian president Zelensky hinting that the status of the regions being disputed by Russia is up for negotiation and Nato membership seems unachievable at present, slight hopes of an agreement being signed have surfaced.
The hope that Russia may call off its invasion of Ukraine as its army gets increasingly bogged down, in return for the annexation of Crimea and Donbas and a commitment by Ukraine not to join Nato, has led to slight risk on sentiment with both European and US equity indices forming minor bottoms.
For the FTSE 100 this has meant that Monday’s Doji on the daily candlestick chart has been followed by a bullish candle and that the contract has managed to close above the minor psychological 7,000 mark, both of which is encouraging for the few bulls which have entered the fray.
Provided the current bullish bias lasts, the January and February lows as well as the 200-day simple moving average (SMA) at 7,177 to 7,230 may be reached. This area represents key resistance, however, and as such may provoke failure.
Further strong resistance can be found between the 55-day SMA, two-month resistance line and 25 February high at 7,452 to 7,564.
The 7,564 high would need to be exceeded for a resumption of the long-term bull market to take shape, something which does not look likely at the moment since the impact of spiralling inflation does not seem to be transitory.
A drop through the 6,764 current March low would have clear bearish implications since support, which has held since April 2021, would be slipped through, meaning that an additional 7% to 10% decline may be in store, taking the contract back to the November 2016 and December 2018 lows and June 2020 high at 6,534 to 6,519.
The technical picture is similar for the German DAX 40 contract which has fallen by some 20% since the beginning of the year - twice as much as the FTSE 100.
The index bore the brunt of its great energy dependency on Russian gas and oil and its component shares did not benefit from surging oil prices, such as BP and Shell did in the FTSE 100.
Nonetheless the DAX seems to be benefitting from some short covering as traders assess the ongoing war in Ukraine and economic stand-off between Russia and the West.
Yesterday’s Bullish Engulfing pattern on the daily candlestick chart points to at least a short-term bottom having been formed at this week’s 12,432 low with the steep two-month downtrend line at 13,695 being targeted, together with the 24 February low at 13,795.
Further resistance sits between the 22 February low and 28 February high at 14,306 to 14,517.
The main resistance is made up of the 14,840 to 14,917 region which encompasses several monthly lows seen since May 2021. This resistance area, if reached at all, is likely to cap any potential upside and would need to be overcome for a new bull market to be formed.
A fall through the 12,432 current March low, which incidentally has been made close to the 2015 peak at 12,408, would put the October 2020 low and the 61.8% Fibonacci retracement of the 2020 to 2022 bull market at 11,332 to 11,150 on the table.
In the US, the Nasdaq 100 is also trying to recover from its recent lows at 13,106 to 13,033, just as the S&P 500 and Dow Jones Industrials Average are.
Immediate resistance is spotted at the 13,721 January low but the current March high at 14,395 would need to be exceeded for a slightly more bullish picture to emerge with the 15,134 to 15,165 resistance zone being targeted. It consists of the 200-day SMA and a confluence of daily highs and lows seen since mid-January, and should act as strong resistance.
Failure at the 13,033 February low on a daily chart closing basis would push the August 2020 high and the March 2021 low to the fore and perhaps take the contract all the way down to the 200-week SMA at 10,382.
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