Overview of Major Stock Benchmarks: Dow, FTSE 100, DAX

Overview of Major Stock Benchmarks:  Dow, FTSE 100, DAX

Most of the major stock benchmarks continue to press higher toward their long-term highs (and, in some cases, record highs), supported by optimism in corporate earnings and accommodative policy stances from central banks around the world.  But since we are now trading at elevated levels, it makes sense to take stock of the underlying performances seen on both the technical and fundamental fronts, as some investors will argue that risk/reward dynamics favor taking profits while valuations remain high.  Volatility levels have slowed in the last two weeks, as holiday thinned trading conditions have reduced investor interest in the short term.  

But looking from a longer term perspective, there will likely be high probability opportunities for new position entries as we head into next year.  From a growth perspective, there are very different macroeconomic environments affecting price movements in the Dow Jones industrials, the FTSE 100, and the DAX -- and some of these differences have become visible in the chart performances seen in these benchmarks, as well.  Here, we will look at some of the most critical events and price levels to watch in the coming weeks.  

Dow Jones:

For investors focused on the Dow Jones, most of the attention continues to center around the next potential developments at the US Federal Reserve.  Analysts are closely watching for commentary by voting members at the central bank to determine whether or not tapering in quantitative easing stimulus will come before the end of Q1 2014 (which is currently the consensus expectation).  With jobs figures showing marked improvement in the last three months, the next critical piece of economic data will be seen when fourth quarter GDP is released.  For most of this year, the trend in US GDP growth has been positive, coming in well above analyst estimates, so it would be surprising to see any major reversals when the fourth quarter figures are released.

From a technical perspective, bullish momentum in the Dow has been undeniable with the index pushing consistently forward to new record highs.  For the moment,

upside resistance is seen at 16,180 and a bullish break here should accelerate gains.  But given the current price proximity with the all-time highs, it makes sense to wait for corrective retracements back into solid support levels.  The first zone to watch comes in at 15,600.  

FTSE 100:

In the FTSE, markets continue to monitor the consistent improvements in GDP as the Bank of England has started to hint that certain sections of the economy are no longer in need of economic stimulus.  At the moment, the BoE has cited consumer spending growth as a key area of strength and this has led to increased inflation forecasts as we head into next year.  Overall growth rates are not quite as high as what is seen in the US but the trajectory is clearly positive and this supports prospects for the FTSE 100 going forward.

Bullish momentum in the FTSE 100 has not been quite as strong as what is occurring in the Dow but prices continue to remain supported by the 200-day exponential moving average (EMA).   “We have seen pullbacks from the late october highs above 6800,” said Sandip Sekhon, analyst at AlphaForecast.com -- a prominent signals service based in the UK.  “Prices are now consolidating near the 6500 region in anticipation of the next move going forward.”

DAX:

The German DAX has also seen an incredible run this year, with prices hitting new all-time highs above 9400.  Strengthening prospects in the Eurozone debt crisis and consistently accommodative policy at the European Central Bank continue as supportive elements.  The recent ECB decision to cut interest rates to new record lows indicates a commitment to growth at the central bank.  

The DAX continues to hover above key psychological levels at 9000, watch this area as a key pivot point, as the index looks to correct back to longer term moving averages after its recent run higher.