China A5 , DAX, FTSE: Inside of 2024’s First Week of Trading

Highlights:

• New highs for German index
• UK Equities Showing Promise
• Could Chinese stocks finally be nearing a bottom?

China: Where is the bottom 

Throughout 2023, Chinese markets repeatedly underperformed, while the rest of the global equity indices repeatedly hit multi-year or all-time highs. The China A50 Index broke below the pandemic low of 11569 that was hit in March 2020, before going on to take out the low of 11161 that was hit in October 2022. However, by the end of the month of December, the index was showing some signs of life, and the bulls were able to push the index back above the October 2022 low. This was a possible bullish reversal sign. So was the fact that it had formed a double bottom at 109884 before staging a rally off the multi-year lows.

Going forward, the bulls will want to see the index hold around the current level of around 11270 to 11161 (the shaded blue area on the chart). It would be ideal to see a bounce from here in the next day or two. The failure to find a support level means that the bulls will have to wait a little longer before the index can potentially find a bottom.

This would be confirmed by a break above the bearish trendline and key resistance around 11546 – 11570 (March 2020 low).

DAX

The DAX repeatedly hit record highs, peaking at just over 17,000 in mid-December, before starting to drift lower in the waning days of the year. The German index started the first trading day on a high note and then lost ground in line with the U.S. indexes. Obviously, the trend is still quite bullish and remains in a buy the dip rather than sell the rip mode until the charts tell us otherwise.

The shaded blue area on the chart between 16286 and 16532 is the key support area that needs to be defended. This area of nearly 250 points is where the 2021 and 2022 highs were made, as well as the July 2023 high. This area was once strong resistance. Now it needs to turn into support to keep the bulls happy.

We expect the German DAX index to make new highs this year as long as the above support area holds. The next target for the bulls is 17004, the all-time high from December 2023, followed by the 127.2% and 161.8% Fibonacci extension levels of the decline from the July 2023 high at 17061 and 17733, respectively.

If the index fails to hold support in this area between 16286 and 16532, then we could see a sharp correction to the next major support level at 16,000, which was the base of the breakout at the end of November.

FTSE

Despite a sluggish start to the year, the broken trend line on the FTSE means that the path of least resistance is to the upside. At the time of writing, the UK benchmark was testing key support around 7688. This level marks the high from the year 2022, a level that proved to be a tough nut to crack on a number of occasions over the past year, before finally giving way in December. From a bullish perspective, the ideal scenario would be for the index to hold above this level to set up for another breakout.

The next upside targets are the Dec2023 high at just below 7770, followed by the Feb2023 high at 8046.

On the other hand, a convincing break below 7688 could open the door to the 200-day average of 7669.