Levels to watch: FTSE, DAX and Dow

As the Greeks move a step closer to an exit, the huge gap lower has brought about an initial recovery, yet how long will that last for? 

A chart
Source: Bloomberg

FTSE gap lower sees initial bounce

The Greek crisis took a turn for the worst over the weekend, with the chances of a Grexit seemingly increased significantly. As with many significant shocks to the market, the initial move in the FTSE has been judged as having overshot the mark somewhat and we are seeing a strong retracement higher. That being said, it is likely that this strength is temporary given the current political circumstances, and thus I am expecting prices to turn lower between the 6623 and 6672 resistance levels. The key to finding the point of reversal is to watch intraday charts for reversal candlestick patterns. 

DAX falls to support zone and begins to waver

The DAX was always likely to be hit more than most other markets, yet even then the circa 600 point fall at the open will have certainly taken many by surprise. The support triangle, which utilizes the 38.2% Fibonacci level, has clearly provided crucial support for the time being and ordinarily I would be bullish with the price having engaged with that zone once more. However, the fundamental situation being as it is, I believe people will most likely be selling into rallies and as such the same applies as for the FTSE, with intraday reversal signals crucial to watch for a likely next leg lower.

Dow drops to support level and begins to bounce higher

The Dow Jones has gapped down to a crucial support level, much like the DAX today. Initial strength has come back to the fore in early trading, which is likely to persist for the time being. The price is currently consolidating between 17,686 and 17,755 which means we are awaiting a breakout in one direction. Likeliness is that we will see further upside before the bears try to take hold again. Thus, much like the European markets, the difficulty is that we are seeing a likely bounce given the strength of the gap lower and support level in play, while also a very negative fundamental view. I expect a bounce higher, but expect sellers to come back into play later in the session.

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