Levels to watch: FTSE, DAX and Dow

With oil prices continuing to drop, and the prospect of quantitative easing from the European Central Bank potentially kicked into the long grass on the back of the imminent Greek election, the appetite for equities has evaporated further

European Union flag
Source: Bloomberg

Continuing yesterday’s theme, Asian markets also fell sharply, and the mood has not brightened much here in Europe this morning. Tomorrow sees the release of eurozone CPI which should essentially indicate that price growth, in spite of the ECB mandate simply, is not taking place. Unemployment is also expected to remain constant, at 11.5%. None of this is really news at this point, but the timings of the data releases in the midst of the Greek political climate merely serve to underline the ongoing problems in Europe, and in many ways add credence to the widely perceived likelihood that ‘Grexit’ is on the cards. Contagion may not be a concern for now as eurozone bond yields are nowhere near where they were at the height of the crisis, but the idea that precedent could be set by Greece is what concerns most.

FTSE eyes third retest of 6150/60

The sell-off in the FTSE yesterday saw the index dip below the 6400 level and leave the support of the long-term trend line from the March 2009 lows behind. Support is being found around the 6390 level now and, as long as this holds, we may see a bounce northwards towards 6485 and possibly even 6500.

One could expect that the 6500 level will be a tough one to crack and might well provide a better level for shorting if indeed we manage to drive that high. Below the 6390 level there is weak support at 6305. The key level to watch and the potential target, should the 6305 give way, is the 200-week moving average. This has provided a very supportive metric over the past three months. Each correction has found buyers around this 6150/60 level and, with the daily RSI not yet oversold, the continued weakness in global equities, and of course the lack of any near-term bottom in oil prices, could send the index back for a third retest.

DAX tests 6400 level

Having broken through the 200-daily moving average from above, even the 100-DMA has been unable to lend any support to the decline in the DAX. Presently testing the 6400 level, we can now assume that the 100-DMA at 9470/80 will now act as a barrier to upside.

Price action on the day is breaching the 38.2% retracement from the October 16 lows to the all-time highs reached in early December, and now look set to target the 9315/20 levels. Below that lies the 50% retracement level (an area that garnered a bounce in the DAX on December 17) at 9231.

Dow likely to target 17,340

Having failed to break above the 50-DMA yesterday, the decline in the Dow Jones has been noteworthy and, now that we’ve fallen through 17,600, the 100-DMA at 17,340 appears a likely target. There is rising trendline support from the October 16 lows around 17,490, which looks like it will be put to the test today. There is a potential for a bounce higher from this level so we would need to see it broken with conviction before focusing on the potential move to 17,410 and then 17,340.

Any drives to 17,560 have been shrugged off by investors and this level is a big ‘sell on the rallies’ zone in the intraday.

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