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Levels to watch: FTSE, DAX and Dow

Apple’s results last night meant that US markets finished off their lows, but with a Federal Open Market Committee meeting on the agenda tonight caution is likely to be the theme of the session.

Frankfurt stock exchange
Source: Bloomberg

US indices finished well off their lows last night, as Apple set out to change the tone with earnings that did not smash estimates so much as completely obliterate them. This rescued what could have been a very nasty day for markets around the globe, but as the day gets underway on this side the prospect of a Fed meeting has meant that early gains have mostly evaporated.

We have already had some comments from eurozone ministers, as the French finance minister argues that Greek debt can be made more flexible (and thus easier to manage) while his German counterpart has taken the traditional tough line on the situation. It could be an entertaining summer.

FTSE could fall to 6740

The FTSE is heading towards the 6800 level this morning, as it falls for a second day and continues to work off its overbought condition. A first target on the downside is Monday’s low at 6740, followed by the 200-day moving average at 6670. It looks like we will not be seeing a test of the 6900 zone any time soon.

The price is dipping through the 100-hour moving average for the second day in a row, and while this was a dip buying opportunity yesterday, the rolling over of the relative strength index and momentum indicators on the daily chart sends a warning that the move may be the beginning of something more sustained.

In the first instance the 200-hour MA at 6700 would be a key area to watch for, as a move below here would signal a real change in direction. Any rally must close above yesterday’s highs around 6890.

100-hour MA supporting DAX

The 10,600 level is to be the important area to watch on the DAX today, with yesterday’s low just below this number. The DAX has not declined for two successive days since the beginning of the year, but as I noted yesterday the European Central Bank effect is continuing to wear off, aided by concerns that tonight’s Fed decision is not likely to prove conducive for more equity upside.

As with the FTSE, the daily RSI and indicators like stochastics are rolling over, a sign that for now the upward momentum has run its course. At present, the 100-hour MA is holding as support, as was the case on 21 and 22 January, while the hourly uptrend off the January lows remains serenely intact.

Only a real close below here should unnerve the DAX bulls.

Dow retreats from 17,700

After yesterday’s volatility the Dow Jones is fighting hard to remain in positive territory, having been knocked back from the 17,700 level. Should downside momentum continue then the lows from mid-January around 17,280 come into play, followed on by the 200-day moving average at 17,100.

Having seen the 50-hour MA push below the 100-hour yesterday, it looks like we will see a bearish crossover of the 50- and 200-hour MAs today, bringing out some more sellers keen to test yesterday’s low just above 17,300.

The loss of the rising trend off the 16 January lows is the most important development of recent days, since this certainly puts the emphasis back on the short side of things. Any rebound needs to close above the 23 January high of 17,850 to negate the more bearish outlook.

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