The Euro Stoxx 50 cash index opened with a positive gap on Monday, due to a boost in the broader market sentiment following US President Trump’s decision on Sunday to delay the March 1st deadline for the US and China to finalize a trade accord. The US President said that last week’s talks, which were extended by two days to Sunday, were “very productive” and that assuming further progress, he will be planning to meet with his Chinese counterpart Xi Jinping soon in order to seal a deal.
From a technical standpoint, the gap brought the index above the 3280 resistance (now turned into support), which is defined by Friday’s peak, as well as the high of October 17th and the inside swing low of October 9th. Overall, the index has been trading in an upside channel after it bottomed on December 27th, and thus, we would consider the near-term outlook to be positive for now.
We would expect the bulls to take charge again soon and perhaps drive the battle towards the 3330 area, marked by the peak of October 9th, the break of which may allow extensions towards our next key resistance area, at around 3370, which is the inside swing low of October 2nd. However, before the bulls decide to shoot again, we see the case for a corrective setback, perhaps for the price to test the 3250 zone, or even the lower end of the aforementioned channel.
Our view for a corrective retreat is based on our momentum signs. The RSI hit resistance slightly above 70 and turned down. Even as Euro Stoxx kept forming higher peaks, since February 15th, the RSI has been hitting a ceiling near its 70 mark. The MACD, although positive, lies below its trigger line and points sideways.
In order to start examining whether the short-term outlook has turned negative though, we prefer to wait for decisive dip the 3220 area. Such a dip may signal the downside exit out of the upside channel and may encourage the bears to aim for the 3175 hurdle. If they prove strong enough to overcome that obstacle as well, then we could see the slide extending towards the low of February 8th, at around 3125.
