The Euro Stoxx 50 cash index rallied today, breaking above the resistance (now turned into support) barrier of 3440, which is near the highs of August 30th and September 2nd. The move has confirmed a forthcoming higher high on the 4-hour chart, which combined with the fact that the index is trading above the tentative upside support line taken from the low of August 15th, paints a mildly positive picture.
If the bulls are willing to take charge again soon, we may see them pushing towards the 3490 territory, which is slightly below the peak of August 1st and is marked by the inside swing low of July 25th. The bulls may decide to take a break after testing that zone, thereby allowing the index to correct lower. That said, as long as it would be trading above the 3440 barrier, we would still see decent chances for a forthcoming positive leg. This is when the bulls may decide to overcome the 3490 area and set the stage for the 3540 zone, near the high of July 29th.
Looking at our short-term oscillators, we see that the RSI lies above 50, but just ticked down from near the 70 line. The MACD is positive, fractionally below its trigger line, but shows signs that it could move above it soon. Both indicators detect positive momentum, which supports the case for further near-term advances. However, the fact that the RSI ticked down makes us cautious that a small pullback may be looming before the bulls decide to take the reins again.
In order to abandon the bullish case, we would like to see a clear dip below 3380. Such a move would bring the index below the pre-discussed upside support line and may initially pave the way towards the lows of August 27th and 28th, near 3335. Another break, below 3335, may extend the decline towards the 3300 area, near the low of August 26th.
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