Levels to watch: FTSE, DAX and Dow

Market choppiness makes for a more difficult trading environment.

Data trader
Source: Bloomberg

FTSE selloff leaves markets in limbo
Volatility and unpredictability within the global indices has increased this week, as the likes of the FTSE 100 followed a strong Tuesday with an equally weak Wednesday. The resistance zone above 7065, and below an ascending trendline from November (currently 7138), has capped any upside movement. As such, we find ourselves in limbo between the key support of 6975 and resistance above 7065.

Intraday markets highlight this indecision, as higher lows (typically bullish) are coupled with lower highs; a bearish phenomenon. Previous examples of price action in the FTSE 100 show tops to be significantly messier than bottoms, which have been sharp reversals. With that in mind, I would not be surprised to see selling continue.

A break below 6975 would be the move to gain confidence of a continued selloff, upon which support levels of 6915 and 6860 come into view. We have been trading in an ascending wedge formation since December and a move back to towards the 6860-6880 region would be consistent with a continuation of that pattern.

However a move back above 7089 would begin to bring the bullish tone back to proceedings.

DAX selling continues
It makes sense that with the Greek issues drawing to a head, there is going to be some weakness or indecision in the European markets. The recovery in DAX following last week’s losses seems to have stalled and having seen the lower high last week coupled with flat lining bottoms, the current price action rings alarm bells for a potential market top.

I expect to see 11,618 retested given the creation of lower lows and lower highs in the intraday markets. A close below 11,618 would be the bearish signal I need to become confident that the choppy consolidation trend is likely to become a more clear-cut bear trend.

Dow consolidation reaches midpoint
The consolidation that has been evident within the Dow Jones has continued today. Prices have reached the midpoint of the symmetrical-triangle formation that has been in play for almost two months now.

With price tightening, a breakout is what markets want to see – yet this seems unlikely given our current position. The failure to make new highs yesterday point to a likely move lower today, and the 17,852 support level is the real challenge should the move occur. Below that, we find ourselves back at the bottom of the triangle (currently 17,770), upon which bullish sentiment would be likely to return.

Despite the bearish look given by yesterday’s lower high, it is worth bearing in mind that – given we are in the middle of a tightening range – price action is likely to remain more unpredictable than at the tops or bottoms, giving a riskier trading environment.

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