European and US stock markets have been seeing substantial weakness over recent days, feeding off the back of a similar period of weakness earlier in the month. These moves have brought about a greater potential for a period of downside for markets. With a number of critical support levels being hit today, there are a number of signals that will tell us more about whether this could come to fruition.
The FTSE has suffered at the hands of a strengthening pound, with the index coming off the back of a third consecutive week of losses. Looking at the stochastic oscillator we have seen the signal line cross below 80 for the fifth time in 13 months.
The past four occasions heralded an average subsequent sell-off of 10%. Even stripping out the 20% drop in May 2016, the past three occasions brought an average of 6.4% downside.