These have been a good few days and as a new week draws to a close, major equity indices look quite bullish, despite ongoing concerns about the US corona virus situation. Sentiment is supported by several factors, not least by improving global economic data as lockdown measures become easier in most parts of the world. Today we have learned that according to the industry's PMI, China has grown at its fastest pace in over a decade last month. Activity in the European services sector also exceeded expectations, with the Spanish flash unexpectedly rising above the boom / bust level of 50, while the and the eurozone were all revised higher.
However, with the US markets closed on Independence Day, it can be a quieter session than usual. Still, major European companies look quite strong, and the latest Chinese and European PMI service data could fuel the rally even without the participation of US investors.
Meanwhile, the German looks quite constructive from a technical point of view compared to some of his European counterparts, as he approaches the record high this year.
The graph of the shows shows a clear breakthrough in the daily time frame after the recent consolidation was resolved on Thursday, as the index outperformed the supportive trendline. Meanwhile, the 21-day exponential moving average has also risen above the 200-day simple MA, which is an objective way to confirm the bullish trend.
Now the starting point of the outbreak is 12385/90 on the daily time frame. This level should apply to the bulls to maintain control over the price action. While above here, any short-term retracements shouldn't worry the bulls on Friday or early next week.
A move back below 12385/90 would, however, cause problems for the bulls, as this would be an early indication that the outbreak may have failed. And the buyers would really get into trouble if the recent low hits before the last rally. That all-time low is 11925. If the index were to drop below this, it would also see a longer-term bullish trendline break. Needless to say, it would be a bearish development if it were to become a reality.
But for now, the path of least resistance is to the top. As such, I expect the dips to be supported and resistances to continue to recede. Speaking of resistance, a hurdle tested at the time of writing was at 12590. If and when we clearly come out above, then the recent high will hit 12933, above which nothing is more important than the pre-lockdown, and all-time, high at 13824.
