Levels to watch: FTSE, DAX and Dow

The indices sell-off seems to have hit the buffers, with the FTSE 100, DAX and Dow Jones all consolidating. Are we set for another leg lower or will we see a turnaround?

US trader in a stock exchange
Source: Bloomberg

FTSE rally could prove short-lived

The FTSE has managed to break above the 6857 mark this morning, creating an intraday double bottom. This points towards a deep retracement, with the 6871-6883 zone looking the likeliest destination. However, as long as price remains below 6903, the short-term downtrend remains intact.

Bear in mind the fact that from a longer-term perspective, the index still remains within an uptrend, which would be negated by a break below 6767. Nevertheless, until we see a break out of this downtrend, it makes sense to follow the trend.

DAX testing crucial support level

The DAX has managed to negate a month-long uptrend, by pushing below the 10,347 mark over the past 24 hours. However, with price now forming a bullish falling wedge pattern, there is a potential for price to catch a bounce from this crucial level.

For evidence this could happen, we would need to see an hourly close above 10,409. Until then, the downtrend remains intact.

Does Dow wedge point to impending rally?

The Dow Jones is similarly trading within a falling wedge pattern, which shows the potential for a bounce should the pattern work out according to the textbooks. There is no guarantee it will, yet an hourly close above 18,000 would provide greater confidence that we will see some form of move higher for the index.

Given we are trading within a major support zone (17,906-17,956), it makes sense to either await a break below 17,906 or else look for a bounce. With price so close to a major critical support level, shorts do not make sense right now.

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