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Levels to watch: FTSE, DAX and Dow

A big two-day recovery for indices has put them on better footing, with the DAX and FTSE double-bottoms in play. However, is this just a short-term phenomenon or something more important?

A chart
Source: Bloomberg

As Q4 begins on a positive tone, the similarities with 2011 are increasingly apparent. In 2011, Q4 represented the beginning of a recovery, and while we remain some way from that right now, there are signs of strength returning.

FTSE recovery reaches double-bottom neckline

The FTSE has continued to storm higher, in extension of the bounce which I expected would ultimately end around 6070. The 6133 area represents the neckline of a double-bottom formation, and thus a break higher from here would point towards the possibility of a wider period of strength of the UK index.

As it stands, the 200-period (four-hour) SMA stands in the way of any further upside, and with the stochastic and MACD histogram both at clearly overbought levels, there is a good chance we could see a move lower from here. Therefore, for now I am looking for the price to sell off from the 200-period SMA, with 6070 the first level of support to watch out for. If the price manages to break this SMA convincingly, then it would point towards a continuation of this incredibly consistent rally.

Ultimately, the ability to break higher from here has significant connotations for medium-term prospects, and an inability to push back below 5878 would begin to turn this chart into a somewhat more bullish one. 

FTSE 100 chart

DAX completes double-bottom formation

Yet again, the DAX appears to be leading the FTSE, with a completion of the full rotation down to the August low, now being followed up by a completed double-bottom formation. This obviously has bullish connotations, and the projected target of the formation looks towards a 10,225. However, for now I see a market which has regained the ground it will have needed to in order to bring a more bullish picture and is likely to roll over in the coming hours.

The question is whether any selloff is going to drop below 9580, and if so it would look more like a messy period rather than a straight forward recovery of sorts. Thus I am bearish while the price remains below 9783, yet I am aware that the medium-term picture is beginning to turn less bearish owing to the past two day’s price action.

DAX chart

Dow still remains below key resistance level despite rally

The Dow Jones has also seen a great two days, yet unlike the FTSE and DAX, its major resistance point remains intact at 16,476. We have often seen the DAX take the lead in recent times and it appears to be the case once more, with all three markets selling off at DAX resistance just like it rallied from DAX support. We would need a substantial selloff to continue the trend of lower lows, and while I do expect us to see the sellers arrive in accordance with DAX resistance, it seems the picture is becoming more and more like one of a possible recovery.

For today, I expect to see the Dow turn lower for a negative session, yet a move back above 16,476 would invalidate this idea.

Dow Jones chart

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