Levels to watch: FTSE, DAX and Dow

It bears repeating that 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 the a 20-day period. 

London Stock Exchange
Source: Bloomberg

Much is conspiring to hold equity indices back today and much of it is based on realistic fundamentals as opposed to a ‘taper tantrum’. Profit warnings, a move on US tax inversion and plain old rights issues are putting the bears in charge.

Downside prevails for FTSE

Last week’s shooting star candle followed up with a large bearish candle has come good, with the downside prevailing. The rising trendline support from 8 August has failed now, so a close eye on last week’s 6760-70 level is warranted. I’d look to see the FTSE move towards 6620 should this level give way. Only a move back through 6815 then 6830 could put the FTSE back in contention for a move towards the recent highs. 

DAX sees additional selling

For now the DAX, having dropped back through 9706, has seen additional selling as the uptrend supports from the 8 August lows have been breached. The 9611 level and the 61.8% retracement from the highs to the recent lows are very important now – a move through here targets the 200-day moving average at 9570.

Dow finds resistance at 17,200

The Dow Jones has pulled back towards 17,120 and is finding support at the 200-hour MA. Resistance now lies at 17,200 – we would need to retake this level if the index is to recover.

Watching now for a move back towards 17,094 (61.8% retracement from the 8 August lows to the all-time highs) – this would be something of a line in the sand.  A move below the 16,945 would cause a problem, and this could well represent a precursor to a decline towards 16,800.

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