European shares keep three-week rally alive with early gains
European shares edged higher in early trade this morning, extending a steep three-week rally as investors bet the Federal Reserve will unveil a new round of bond-buying to support the US economy.
Charts showing a number of benchmark indexes are ripe for a short-term technical correction helped limit gains.
At 0912 GMT, the FTSEurofirst 300 index of top European shares was up 0.1 percent at 1,140.32 points, a level not seen for 18 months. It has surged about 7 percent since mid-November.
"The market is getting 'overbought', which doesn't happen very often. We're ripe for at least a pause, and maybe a pull-back," said Kepler Capital Markets trader Patrice Perois.
"Volumes have been extremely low, which means that the rally remains fragile regardless of the newsflow."
Charts show the FTSEurofirst 300 - along with UK's FTSE 100 index, Germany's DAX, France's CAC 40 and the euro zone's blue chip Euro STOXX 50 - slipping into 'overbought' territory, with their relative strength index (RSI), a closely-watched momentum indicator, above 70.
The Fed, whose two-day policy meeting ends today, is expected to replace its expiring Operation Twist programme of Treasuries purchases with a new bond buying plan which will further expand the central bank's balance sheet.
The FTSE 100 index was up 0.2 percent today, Germany's DAX index up 0.3 percent, and France's CAC 40 flat.
Spain's IBEX and Italy's FTSE MIB, far from being 'overbought' after a recent pull-back, were up 0.5 and 0.6 percent respectively.
"The rally has reached a point where a lot of market players have to make a decision," said Guillaume Dumans, co-head of 2Bremans, a Paris-based research firm using behavioural finance to monitor investor sentiment.
"The bulls are starting to book profits, the bears seem keen to keep their positions and the 'neutrals' are torn between going short at these levels or just waiting for a dip to go 'long'."
Utility stocks were among the top gainers following recent sharp losses, with France's EDF up 1.9 percent, Spain's Iberdrola up 1.1 percent and Italy's Enel up 0.9 percent.
European shares have strongly rallied over the past six months, with the Euro STOXX 50 surging nearly 30 percent, propelled by significant measures unveiled by central banks to boost the global economy and fight Europe's debt crisis.