FTSE 100, DAX and Dow slump after recent gains

FTSE 100, DAX and Dow break sharply lower, yet wider trend could point towards a swift recovery.

FTSE 100 drops into deep retracement area

The FTSE 100 has continued its decline from 7441, with the head and shoulders around that level providing a key reversal signal.

However, that could simply be a short-term move, with the wider picture pointing towards a strong possibility that this is a retracement before we move higher once more. With that in mind, watch out for whether we move higher from this 76.4% Fibonacci support at 7255. A rise through the overnight consolidation top of 7307 would add greater confidence to the notion of an impending bullish reversal. Conversely, should we decline below Fibonacci support, the crucial level to watch is 7196 which would signal a wider bearish picture if broken.

DAX fake-out leads to sharp decline

The DAX appeared to be breaking higher yesterday, with the price rising through 13,310 resistance. That signaled a likely bullish breakout after recent consolidation. However, with the price failing to close above that level and breaking lower, it seems that move was a fake-out.

The sharp decline has taken the index below 13,137 and 13,040 support, bringing about a heightened chance of a more protracted breakdown. With that in mind, while we are regaining ground, there is a good chance that this move is a precursor to further downside.

Dow declines into Fibonacci support

The Dow Jones has seen a similar sharp decline, with the index dropping sharply into the 76.4% Fibonacci support level.

Whether or not the price holds up at this support level will be crucial for the ongoing outlook. As such, while this could be a reversal point for the index, a break below 27,800 and 27,675 would bring a wider bearish picture into play.

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