In our 14 February 2016 article, we had mentioned that a potential rally was underway and this is what we got. Now the 64 dollar question is that whether this rally has legs? In the US the picture is much better than in Europe which remains much weaker. In this article we also discuss the German DAX, the leading European index. In the charts below, we discuss key levels for the rally to reach. Getting above those levels would be a good signal that perhaps this rally has legs and the markets could have bottomed.
Lets take a look at the charts:
Russell 2000 the small cap index:
Amongst the U.S indices, Russell 2000 has been the one which led the decline especially in percentage terms before the other broader indices such as S&P 500 caught on to the decline. Russell 2000 formed a very nice AB = CD pattern formation in early February and has been rallying for the last 3 weeks. As shown on the below chart, the index has reached the 28.2% Fibonacci retracement level which is a significant one. The index must clear this level of 1045 to get going to the upside. If it fails to get above this level and closes below this week’s low of 995 it would be very bearish and the index could then move toward the next key levels of 880 to 860. On the upside the danger zone is between the 1070 to 1100. Getting above the 1100 level would be very positive for the index.
Dow Jones Industrial Average:
Dow Jones Industrial Average has also been rallying since putting in a low at 18 Jaunary 2016 with a double bottom pattern formation to the August 24 2015. The low was revisited in early part of February and then the market has been rallying for the past 3 weeks. The danger point for this rally comes between the 17000 to 17400. Getting above 17400 level is an indication that perhaps the rally has legs.
We like to follow ES (front month contract) for S&P 500:
Like the Dow Jones Industrial average, S&P 500 has also been rallying for the past 3 weeks. The key level we are looking for is the 1970. Getting above this would be bullish for the index.
New York Stock Exchange index NYA:
Lets take a look at the broad index the New York Stock Exchange index. After forming a double bottom the index has been rallying for the past 3 weeks. The danger zone for the index comes at 10000 to 10276. Getting above this zone is bullish for the index.
Lets take a look at the leading European index the German DAX. We can see the Europe is much weaker than the United States. The European Quantative Easing does not seem to have worked out much to the expectations.
We have two pattern in play. A smaller patttern and a larger scale pattern. Market found a bottom at the 8700 level at the 88.6% Fibnacci retracement level off the lows of 2014. As long as this low is held, the market could rally with the first target being the 38.2% Fibonacci retracement at 9750. However, if it turns down from here, then it is an indication that the market is much weaker. Then the larger pattern comes into play with a target of 7800.
Getting above the 9750 level could put the index in a good position to rally toward 10400 to 10800.