The Euro Stoxx 50 cash index edged north on Friday, after hitting support once again near the 3100 territory. Today, the index continued drifting higher, breaking above the downtrend line drawn from the peak of the 3rd of October, signaling that the sellers may have started abandoning the battlefield. That said, the index has yet to confirm a forthcoming higher high and thus, it is still early to assume that the near-term outlook has already turned positive.
We would like to see a clear break above the 3187 hurdle before we start examining whether we have a positive reversal. That barrier has been providing decent resistance since last Tuesday, and also acted as a good support on the 18th and 19th of October. Its break would confirm a forthcoming higher high on the 4-hour chart and may initially target the peak of the 22nd of October, at around 3243. Another break above 3243 could set the stage for the 3282 level, marked by the high of the 17th of the month.
Looking at our short-term momentum studies, we see that the RSI moved higher and just crossed above its 50 line, while the MACD, although negative, lies above its trigger line and points up. These indicators support the notion for the current recovery to continue for a while more, but as we already noted, we prefer to wait for a break above 3187 before we get confident on that front.
On the downside, a dip back below the aforementioned downside line could raise concerns that today’s break was just a false signal. That said, a break below 3100 is the move that could turn the near-term outlook back to the downside. Such a break would confirm a forthcoming lower low and is likely to initially aim for the 3065 support level, which proved a good resistance during the second half of November 2016. Another break below 3065 may open the path for the psychological round number of 3000.
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