Technical analysis: key levels for FTSE, DAX, Dow

A quiet end to Friday has given way to some modest losses for indices in Europe, ahead of the American return to business following its Independence Day holiday.

A man looking at a chart
Source: Bloomberg

FTSE continues 6880 struggle

It would be hard to blame anyone for being nervous about the FTSE 100, as it struggles once again to break through 6880. Until we see a definite close through this level (and, ideally, 6900 to boot), then it is not time to go all out on new long positions.

A close above 6900 and then a move of the 20-day moving average above the 50-DMA is the most positive scenario, and momentum indicators such as moving average convergence diverge(MACD) have turned positive in recent days, suggesting there is some force behind the move.

A drop below the 50-DMA would open up the bearish case, with a retest of 6800 and then 6750 possible.

DAX RSI weakening

The DAX is also feeling the pressure, attempting to remain above 10,000 (and, so far this morning, failing). For the German index the situation does look much more positive than for the FTSE, with long positions at this point looking more tempting.

However, the relative strength index is weakening at present, a worrying sign in the short term that presages a degree of directionless trading. The index is risking a triple top if it does drop back from here, an event that will have many looking on in worried fascination.

Until we see a drop through 9800, the picture remains bullish, but a loss of 9800 would signal a possible move back to the 100-DMA, although some traders may wish to wait for other indicators such as stochastics to confirm this move.

Dow to play catch-up

US futures suggest a weak start for the Dow Jones as US indices play catch-up today. But with the MACD having turned positive, the US may once again drag European markets higher.

The close above 17,000 last week was the most encouraging sign, even if it risks making the index look overstretched. In the short term, we need to see 17,075 broken but the overall picture is still bullish, and even a push back towards 16,900 and the 2014 uptrend would not endanger the upward move in any meaningful fashion.

Only the loss of 16,800 would put the emphasis back to the downside, but those of a bearish disposition should watch the 20-DMA very carefully, as this provided excellent support through June. 

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