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Levels to watch: FTSE, DAX and Dow

Markets have opened in the red this morning, with GDP numbers from Japan to blame, removing any chance that the end of the G20 meeting would produce some positive sentiment on this rainy Monday morning.

Shinzo Abe
Source: Bloomberg

Abenomics was supposed to restore Japan’s economy to full health, but it has not exactly been successful in this endeavour so far. GDP dropped by 1.6% year-on-year in the third quarter, much worse than the expected 2.2% gain. It appears the April increase in consumption taxes had more of an impact than first thought.

The reaction last night was swift, with the Nikkei kicking off its week on the back foot, but given that we had seen it at a seven-year high recently this bout of profit-taking is only to be expected.

Looking ahead to this week perhaps the key day will be Wednesday. Not only will the Bank of Japan issue a policy statement but there will be minutes from the Bank of England and the Federal Open Market Committee. With sentiment looking shaky, the middle day of the week could well be the determinant as to whether this period of consolidation turns into something more serious or turns around and begins a new rally.

FTSE progress checked by 100-DMA

We did nose above 6650 on Friday, but this morning the FTSE is exhibiting further skittishness regarding further gains. The 100-day moving average is providing a hurdle to additional progress, while the daily relative strength index has dropped back once again. A further drop today would target 6610 and then 6585, with some support possible around the 50-DMA.

On the hourly chart the picture does not look too bearish, with the 100-hour MA having done excellent work since the middle of last week to prevent any sustained dip for this index. The 6620 level has held so far as intraday support, so for the moment a short-term target is the 6660 area.

The 200-hour MA at 6590 would be the first real hurdle for the bears with 6560 below that a first target. Until the 50-hour MA crosses below the 200-hour I remain cautious about near-term weakness.

DAX RSI continues move lower

The DAX’s retreat from 9400 continues, with the index opening below the 50-DMA for the third day in a row. The daily RSI here and the stochastic moment index continue to move lower, which is a clear sign that the bears are gaining the upper hand.

However, for the time being the shorts have found little traction below 9200, so this is the first target. A daily close below here would certainly set the cat among the pigeons, with a downside target of 9150 and then 9100. A move upwards still needs to breach 9400 and then the 200-DMA at 9505.

The 50-hour MA is holding back gains to the upside this morning, while aside from Friday’s short rally the 9250 level is also preventing a real move higher. The 9150 level was tested early on today but the buyers returned to defend this area. A move below here on an hourly chart leaves the index dangerously lacking in support, with 9030 and then 8900 possible supports.

Dow RSI still overbought

Although still overbought on a daily RSI chart, the Dow Jones is continuing to slip back from last week’s highs. For now it is showing some reluctance to move below 17,600, but a close below here would point towards 17,530 and then 17,345 as potential support.

The Dow still looks overextended at current levels, being so far from the 50-DMA, so either the price must retrace or the moving average catch-up. Either way, the negative report on Japan’s GDP has left the index struggling for positive news.

We did have the first test of the 200-hour MA in this rally, quite a major development. For now the indicator did as expected and allowed room for a small bounce, but with the 50-hour MA beginning to move lower we may be treated to a bearish crossover in this timeframe, targeting 17,400 in the first instance.

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