The Euro Stoxx 50 cash index traded lower during the European morning, after it hit resistance near the 3330 zone. Since December 27th, the index had been steadily drifting north, but this was up until Friday, when it slid below the uptrend line taken from the low of that day. In our view, the break below the trendline suggests that the bulls may have abandoned the battlefield for now, but we would like to see a clear dip below 3275, or even better below 3250, before we get confident that the bears have taken the driver’s seat.
A break below 3275 could signal the completion of a short-term “head and shoulders” formation and would confirm a forthcoming lower low on the 4-hour chart. Another dip, below 3250, may tip the scale even more to the bearish side, as it would place the index below the 200-EMA. Such a move could pave the way towards the 3220 support zone, the break of which may carry more negative implications, perhaps opening the path towards the low of February 15th, at around 3175.
Our short-term momentum studies detect downside speed and corroborate our view. The RSI, already below 50, turned down and could be headed for another test near its 30 line. The MACD is also within its bearish territory, fractionally above its trigger line, but shows signs that it could turn down as well soon.
In order to start examining whether the near-term outlook has turned back positive, we would like to see a decent recovery above 3380. Something like that is likely to drive the index back above the aforementioned uptrend line and may allow extensions towards the high of March 19th, near 3420. A break above that peak could strengthen the bullish case, as it would confirm a forthcoming higher high on the daily chart and may pave the way to the peak of September 27th, at around 3450.
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