Levels to watch: FTSE 100, DAX and Dow

European markets are showing initial signs of a potential longer lasting pullback, while US markets are left reeling after a sharp decline yesterday.

FTSE 100 retracing lower after recent ascent

The FTSE 100 has pulled back this morning, bringing a bearish short-term picture following the break below trendline support and the 7358 swing low.

As such, there is a strong chance we will turn lower once more rather than break above yesterday’s high of 7436. This raises the chance that we will see the FTSE 100 turn lower again from the 61.8%-76.4% zone (7403-7416). A break above 7436 would point towards a continuation of the recent uptrend, while any further downside would simply be seen as a short-term pullback, with a fall below 7189 required to negate the wider bullish trend.

DAX drops below key support

The DAX has dropped below the 12,463 support level, completing a double top formation off the back of a month-long rally.

This rally faltered at the crucial 12,611 resistance level (late-February peak), and the fact we have a reversal pattern in play at that level points towards a potentially bearish shift from here. While the price is attempting to regain ground, there is a good chance that we have seen the beginning of a bearish phase, and as such it makes sense to look for further downside on such a near-term rally. A break above 12,640 would be required to negate this bearish short-term view.

Dow tumbles into deep retracement

The Dow Jones sold off sharply yesterday, with the initial rebound seen in the morning giving way to a drop below the crucial 24,327 swing low.

There is a good chance we are seeing a short-term retracement, which points towards a recovery from the 23,701-23,922 support zone. However, with the wider downtrend still in play, the worry is that we could still see a break below 23,343 to continue that trend. With a whole host of earnings figures due out today, much will be impacted by the fundamental picture. However, for now, there is still a strong risk of further losses, where any longs would be preferred at the 76.4% (23,701) retracement owing to risk-reward benefits.

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