Levels to watch: FTSE, DAX and Dow

With the DAX breaking higher from previous resistance and FTSE drifting sideways, could the ECB spark the indices back into trend?

Data chart
Source: Bloomberg

FTSE remains choppy and unpredictable
Yet again, the FTSE is the troublesome character out of the three markets we cover here, with significant choppiness and unpredictability characterising the beginning of this week. We do have a rough broadening formation, showing that volatility is rising as we progress but for now, this market is a difficult one to trade.

Given the lack of direction, I would prefer to sell into rallies up to 6378 and buy at 6300. However, it would make more sense to await a good breakout to determine a strong trend. Given that this current move lower represents a shallow retracement of the 15 October rally, my bias would be for an upside breakout above 6400.

DAX breaks above key resistance
The DAX finally broke above 10,188 yesterday, with the price indeed bouncing higher from the 100-hour simple moving average. While price punched higher for around four hours, it has since pulled back and trades just above 10,188.

This is obviously now a key support level and should price not close back below there, it would point towards the use of it as a base for another move higher. Alternately, given the wedge/channel formation the DAX is currently in, should price close below 10,188, it would point towards a retracement to the area between our two support trend lines – currently 10,127-10,160.

Dow drops out of uptrend, yet next step is less clear
Yesterday saw the Dow Jones fall out of the clear upward trend we have seen throughout this week, with price finally forming a lower low, below 17,194. However, the bounce overnight has brought us to a crossroads.

On one hand, the current consolidation looks like a short-term bullish flag formation, with resistance back at that 17,194 level. Alternately, this could be a short reprieve on a bigger selloff.

My way of resolving this is to say that should we see a break through the top of this ‘flag’ and thus through key resistance at 17,194, then I would expect a decent move higher, back towards 17270 (flag projection). However, should price close back below the overnight low of 17,128, then this would point towards a more protracted move lower for the index, where 17,037 would seem a likely support level to watch.

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