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Levels to watch: FTSE, Dax and Dow

The first day of the new month sees the traditional strong performance of European indices asserting itself once again, despite a weak finish to the session on Friday. 

Chart on computer screen
Source: Bloomberg

The weekend provided fresh developments in the Greek drama, while Chinese PMI figures disappointed on the headline number. Although the figure contracted for the first time in two years, employment in services data has picked up of late, offsetting some of the negative implications.

European indices have refused to give up their gains from recent weeks and remain within touching distance of multi-year highs, even if a firm move above 10,800 remains something of an excessively ambitious target for the DAX.

FTSE slips back from 6800

Europe might be looking reasonably healthy but the FTSE 100 continues to slip back from the 6800 area. Anxious bulls should keep an eye on 6770, the highs from November and December, since a close below this zone would mean the surge seen last week was something of a flash in the pan (at least for the time being).

The index finds itself pressing in the direction of the 200-DMA, around 6680, and a close below here targets 6600 and then the 6570 area.

The auguries seem to be lining up for a period of choppy trading, if not outright decline, as the 50-hour MA crosses below its 200-hour counterpart. A descending channel on the hourly chart does seem to have developed, with a downside target around 6700.

DAX stuck below 10,800

Despite the glittering gains of January for this index, it still remains stuck below 10,800. For the past week the index has been stuck in a range between 10,600 and 10,800, as the frantic tussle between buyers and sellers produces much heat but little light. A firm close below 10,600 would send a bearish signal, and at least point towards the potential formation of a definite direction.

DAX watchers have to remain fixed on the hourly trendline. The index’s inability to move higher means it has got closer to rising support, having looked overextended. The 200-hour MA sits around the trendline as well, which means a real break below these two lines would be likely to signal that a short-term top has developed. Downside targets would then reside around 10,500 and then 10,200.

2000-DMA key for Dow

The official Dow Jones close saw the index end below 17,200 on Friday, the key zone that has acted as supported in recent sessions. Futures have tried to reclaim the level but we find ourselves below it once again.

For this index the 17,200 and 200-DMA remain the most important levels. A break below these two, especially the latter, would be a very bearish signal. The price has moved back below the trendline on the hourly chart, so unless earnings pick up again today and during the rest of the week February may well start on a very weak note.

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