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Levels to watch: FTSE 100, DAX and S&P 500

US markets returned to the lows of October, but in the early part of the session European markets have rallied from their lows.

FTSE 100 surges off overnight lows

The FTSE 100 tested the support zone around 6920 yesterday, creating a lower low in the intraday charts, but today it has rebounded from this level.

A sharp overnight rally has brought the price back to 6980, which was supported throughout the past week. Above here, the price targets a confluence of horizontal resistance, trendline resistance and previous trendline support around 7025. A turn lower from this level (or below it) would mark another possible lower high within the move down from the mid-November high, suggesting another attempt to push below 6900. A rally through this level targets 7100 and then 7200.

DAX rallies off the lows, but more work to do

Yesterday’s drop saw the DAX hit rising trendline support that extends back to late 2011.

The index also held around the lows of October at 11,055, which reinforces the idea that a bounce is at hand. Intraday, the price has rallied off the lows, but needs to clear 11,200 to suggest that the buyers are back in charge, at least in the near term. Even then, the previous lower high at 11,400 would also be another hurdle.

S&P 500 returns to the lows

The S&P 500 has executed an almost textbook drop back to the lows of October, although the intraday lows down towards 2600 have not yet been retested.

Below 2600, 2553 and then 2532 come into play as potential support. A recovery above 2690 would be a positive signal, while the daily stochastics and moving average convergence divergence (MACD) continue to point towards positive divergence, i.e. they have not declined to the same extent as the price, suggesting that the downward move is running out of steam.

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