Levels to watch: FTSE, DAX and Dow

The indices fall back to their respective swing lows. Is this simply a deep pullback or indicative of something more bearish?

Data on screen
Source: Bloomberg

FTSE rallying after yesterday’s weakness

The FTSE 100 sold off sharply yesterday, pushing below the crucial 6893 mark briefly. However, despite this occurring, a bearish view is not in place given the moves we have seen in correlated markets such as the DAX and Dow Jones. Given the depth of this pullback there is certainly a chance we will see another move lower soon and thus a more neutral view is in place until we see how this plays out.

A bearish outlook would come into play should the FTSE break and follow through on a move below 6893. Until that occurs, another leg higher is certainly a possibility.

DAX back from the brink

Unlike the FTSE, yesterday saw the DAX hold on to the key support level of 10,632 and has been rallying ever since. This is the key support level which must hold for the uptrend to remain in place.

Given the price action we are seeing this morning, there is a potential head and shoulders pattern in the offing, with an hourly close below 10,632 pointing towards a sharp deterioration in the index. The head and shoulders target would be 10,456.

Dow rallies from key support level

The Dow also fell to its crucial swing low yesterday, with price bouncing from within points of the 18,533 level. Ultimately this level will dictate the state of play for this index, with an hourly close below 18,533 providing a more bearish view.

Until that happens there is also a strong chance of a recovery. As such, a more neutral view is in place.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.