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Levels to watch: FTSE, DAX and Dow

Friday’s BOJ-fueled rally brings indices to relatively overbought levels, yet will the rally start to come undone?

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Source: Bloomberg

FTSE rally likely to fade

Friday saw the FTSE 100 rally heavily following an unexpected shift by the Bank of Japan. This took us back through the 6070 resistance and, set within the wide swings of this five-month pattern, it is clear that this move does not necessarily mean that the worst is over.

We would need to see a close back above 6324 to gain any confidence of a wider recovery. On the daily timeframe, the stochastic oscillator is now overbought and extending towards the levels that have capped each of the last three rallies. As such, while we are clearly within an uptrend on the lower timeframes, this rally is expected to turn lower within the coming days. 

The consolidation seen this morning looks relatively bullish and a closed hourly candle above 6128 would provide a bullish outlook for the day. However, with such a strong move on Friday, an hourly close back below 6093 would signal a more bearish view for the day.

Resistance levels of note are 6152, 6174 and 6200, where initial support levels are 6070, 6024 and 6000.

DAX recovery unconvincing

The DAX saw a much less convincing end to February, with the index dropping out of a diamond top formation, with the subsequent rally failing to retake the midweek highs.

We are seeing a move lower this morning, which could simply be a retracement of Friday’s rally. However, given that this is occurring from Monday’s highs, we could also be seeing a head and shoulders formation occurring.

While a medium-term bearish view holds, we would need to see a closed hourly candle below 6454 to gain confidence that a strong move lower is about to occur. Until then, any move lower is seen as a retracement where 9759, 9727 and 9696 represent the near-term support levels.

A break back above 9852 would look towards 9900 and 9943 resistance. 

Dow breaks through wedge top

The Dow Jones broke through the upper threshold of an ascending wedge last week in a similarly bullish move to that in the FTSE. This morning we are seeing a period of flatlining consolidation, where the break should provide a clear direction for the following hours of trade.

Considering the moves in both the DAX and FTSE, we seem more likely to move lower through 16,385 than higher. However, it seems sensible to await a break first and thus a bearish short-term view would come with an hourly close below 16,385.

In this case, support levels of 16,278 and 16,235 would be in view. Alternately, a closed hourly candle above 16,455 would look like continuing this bullish trend, with resistance levels at 16,483 and 16,626. 

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CFDs are a leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your initial deposit, so please ensure that you fully understand the risks involved.