The Euro Stoxx 50 index surged to a 2 ½-month high of 3612.36 on October 3, retracing more than 70% of the downtrend it recorded from May 8 to August 29. Technical indicators signal a bullish picture both in the short and the medium term. However, the index might continue stretching its current red candle during the day as the index is overbought.
According to the RSI and the MACD oscillators, the bias in the short term is bullish, with the former being above 50 and the latter above zero and its signal line. Still, a risk to the downside remains high as the RSI is pointing to the downside in an overbought area (above 70), while the MACD has slowed down. Moreover, the Ichimoku analysis also hints a positive structure as the index is located above the Ichimoku cloud and the bullish cross between the Tenkan-sen and the Kijun sen is still intact.
Should the index head downwards, an immediate support could be met at the 61.8% Fibonacci of 3561.09 of the downtrend from 3683.53 to 3360.55 (May 8- August 29), a level tested repeatedly between May and June. From here, further declines would target the 50% Fibonacci of 3522.75. If this comes into view then the bullish phase would turn into neutral. Another barrier also could be found at the 23.6% Fibonacci of 3436.81.
In case the index hits up, an immediate resistance would be the 2 ½-month high of 3612.36 reached yesterday before the index turns higher towards the top of 3683.53 seen on May 8. Additional extensions to the upside would shift focus to the April’s 2015 high of 3835.20.
Looking at the medium term, the outlook has switched from bearish to bullish after the 20-day exponential moving average crossed above the 50-day exponential moving average on September 19.
