Levels to watch: FTSE, DAX and Dow

The resilience of the bullish trend in markets was clear yesterday as European Central Bank quantitative easing got underway, but another weak session in Asia has put indices on the back foot.

Man looking at data on a screen
Source: Bloomberg

Markets in the UK and Europe have opened in the red this morning, but only marginally so. The bounceback in US indices last night helped to bolster sentiment, but the overarching story remains one of US dollar strength. This week is a light one for economic data, which means that the outlook for US rate increases is going to remain the dominant theme.

FTSE bulls eye move above 6890

Having closed below its December trendline yesterday, the FTSE 100 now looks first to 6860 and then 6750 as potential areas of support. The 6860 level was the low from last week, where buyers stepped in to prevent further losses.

A rebound back above 6890 would hand the initiative back to the bulls, but for the moment a declining daily relative strength index and bearish stochastics give little reason to think that there will be any change to expectations of further losses.

DAX overbought on RSI

This index continues to cling stubbornly on near record highs, remaining overbought on the daily RSI. We have yet to see a test of the rising trendline on the hourly chart, which currently provides support in the area of 11,470, while the 200-hour moving average at 11,420 is another possible area where buyers may enter.

With ECB QE now begun, dips in this market (and other eurozone indices) are likely to be short-lived, but it seems hard to turn bearish on this index unless, and until, the price moves below the 20-day moving average or daily stochastics give a clear bearish signal.

Dow bears wary of October low

Perhaps some of the Apple euphoria was responsible for the bounce in the US yesterday, but generally Friday’s move had been rather overdone and a small turnaround was always on the cards. Today however we have seen futures weaken once again. The Dow Jones is still headed towards the rising trendline from the October lows and bears should be careful as we approach this level (even if it is still some 300 points away).

On the four-hour chart the bounce yesterday has run its course and both the RSI and stochastics have turned lower. A break through yesterday’s low at 17,850 would signal further weakness ahead, while the bearish crossover of the 20- and 50-period moving averages indicates that the default position remains bearish. 

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