Levels to watch: FTSE, DAX and Dow

Weaker growth in China, rising interest rates in the US, and a general feeling that perhaps the markets are a little overcooked have seen some softness prevail in equity indices today.

Numbers on a board
Source: Bloomberg

Interestingly enough, markets underwent a similar correction exactly this time last year with the DAX shedding 3.25%, the FTSE declining 6.81% and the Dow losing 5.91% over a 20-day period. Whether this is a case of history repeating itself remains to be seen.

FTSE could return to recent highs

The FTSE daily chart ended last week posting a shooting star candle which has so far been followed up with a large bearish candle. This only serves to underline the strength of resistance felt around 6900. The 100-day moving average is holding the downside right now at 6788. With a falling daily relative strength index, we may be looking at some additional weakness in the UK benchmark with the mining sector taking another hit on the back of falling commodity prices and, of course, the latest profit warning from Tesco also giving the bulls some pause.

The rising trendline support from the 8 August lows is still intact on the one-hour chart, so a close eye on last week’s 6760-70 level is warranted. A move back through 6815 then 6830 could put the FTSE back in contention for a move towards the recent highs. Short-term moving averages are capping gains in the near term.

DAX hit by profit-taking

For now the DAX has failed to overcome the 9900 level, and the bearish RSI on the daily chart has seen profit-taking set in.

The bullish channel uptrend from the August lows is still apparent, but any drops back through 9706 could herald a sharper decline.

A move through 9890 (preferably on a daily close) could see the index make another attempt on the 10,000.

Dow supported by 17,195

The Dow Jones started to look a little overbought on Friday, and having hit a high of 17,360, has staged a retreat in early trade. Support comes from 17,195 then 17,160 (previous resistance). A break back above the 17,274 level would negate much of the current downside, and with the short-term RSI rising, it could be a near-term target.

Only a dip below the 16,945 would present a problem. This could well be the precursor to a decline towards 16,800.

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