Foreign Markets Finding Their Feet

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While we will be much more confident once the FTSE retakes this heavy zone of resistance, other pieces lurk. The 200-day exponential is at 6136, and trendline resistance, off the recent highs, sits at 6180. In addition, a 61.8% retracement of the decline targets 6235.

On the weekly chart, the index has bounced nicely off of the 38.2% retracement line of the entire bull market. This retracement is just above the 5500 level. Prices remain below key long-term moving averages such as the 43-week and 80-week exponentials, and have rallied to the underside of the 17-week exponential. Based on these longer term averages, and longer term price patterns, the FTSE is still in a corrective mode, so some caution is still advised. However, things are starting to look and feel a bit better, and hopefully, the worst is behind us.

The DAX Index has also rallied nicely off the mid-March lows, and its pattern over the past few months looks very similar to the FTSE. While there have been some encouraging signs over the past couple of weeks, and we believe that the index is trying to trace out an intermediate-term bottom, the longer-term trend is still lower.

Like the FTSE, it is too early to tell whether Germany's DAX index is tracing out a double bottom or inverse head-and-shoulders (H&S) pattern. If the DAX can rally and break through the recent highs at 7000, then a double bottom will be in. If the DAX runs up to that chart resistance at 7000 and then pulls back, then the formation would look more like a H&S bottom. Before the index can take out 7000, it must break through the 50-day exponential average at 6787 and the 80-day exponential just below 7000.

If the index can break above the 7000 area, where it has been turned away three times since early February, the next piece of potential resistance may come from the 50% retracement of the decline that targets the 7164 level. The first real piece of chart resistance above 7000 comes from the important pivot low in August at 7270. The 200-day exponential, which has been on top of the index since mid-January, lies at 7232 and is considered longer-term resistance. Above the 200-day, a 61.8% retracement of the decline targets the 7388 level. So, like many other indices, the DAX faces a lot of resistance overhead.

Looking at momentum, we have seen some positive developments of late. Both the 14-day relative strength index (RSI) and the daily MACD have traced out positive divergences after getting extremely oversold. Both these daily momentum indicators have traced out higher highs and higher lows, and have also broken their downtrends.

On the weekly chart, the DAX has broken long-term trendline support, drawn off the lows since 2004. This line was bull market support, in our view, and the breaking of it suggests that the primary trend is still lower. The index also broke sharply through the 50-week exponential average for the first time since late 2000. The next key Fibo retracement of 38.2% of the bull market comes in just below the 6000 level.

The 14-week RSI has dropped to an oversold level of 26, the most oversold the DAX has been on a weekly basis since October, 2002. The 14-week RSI is in bear market territory and is still in a downtrend. The weekly MACD is firmly in negative territory, near its lowest and weakest point since late 2002, but is starting to curl up.

In Asia, the Hang Seng index in Hong Kong looks like it is tracing out a bottoming formation, and with last week's strength, broke above some key pieces of short-term resistance. While we think more time is needed to complete a bullish reversal formation, we are seeing some positive technical signs that may suggest the worst is behind us.

With the recent close at 24,265, the Hang Seng was able to break slightly above its 80-day exponential average for the first time in many months. In addition, the index took out two bearish trendlines, one off the most recent highs, and one off the highs since November 2007. To complete the current base, the index must break strongly above the recent highs just above the 25,000 level. There has been a bullish divergence on both the 14-day relative strength index (RSI) and the daily MACD. These divergences occurred from oversold territory, and suggest that momentum is improving, many times a sign of a short-term bottom. Weekly momentum has gotten oversold, and it appears that the trend is starting to bottom out and turn higher.

On the weekly chart, we have another potential "V" bottom. These are rare for the U.S. indices, but, seem more prevalent in Asia and the emerging markets. The Hang Seng has broken back above its 65-week exponential but still is under the 30-week average. If the index can repair the technical damage, there is not a lot of longer-term resistance overhead, so things could once again get very interesting on the upside.

Arbeter, a chartered market technician, is chief technical strategist for Standard & Poor's .