Levels to watch: FTSE, DAX and Dow

A poorer-than-expected print for German factory orders in September may well set the tone for European equity markets today. 

A chart
Source: Bloomberg

A decline of 5.7% on the month versus the expectation for a fall of 2.4% means this is the biggest drop in orders since 2009, and helps to underscore the issues facing both the core and the eurozone as a whole. Disappointed by the European Central Bank’s failure to embark on quantitative easing last week, European equity indices instead looked Stateside for an upside catalyst and found it in the better-than-expected unemployment numbers.

The downward revision to China’s GDP growth over this year and next by the World Bank earlier this morning could impact the FTSE mining sector and remove some of the overt bullishness from last Friday’s trading session.

Today will be light on macro data, but this week promises to have plenty for traders to watch with US corporate earnings kicking off as well as the release of the Federal Open Market Committee minutes likely to both engage and provide direction.

The uptrend for global indices remains but it is worth keeping an eye on the mid and smaller cap indices – like the Russell and FTSE 250 – that have proven to provide an early signal for the major indices.

FTSE above 6530

The FTSE did not quite come all the way back to 6400 last week with buyers coming in at 6423, as the confluence of the rising support from the July 2011 lows and the horizontal support stopped the decline. Having shed almost 7% from the highs reached in mid-September, the FTSE has work to do if it is to show any return on the year.

Price action is perched upon the 100-week moving average, and while tested we haven’t witnessed a weekly close through this metric since November 2012 (and even this was a short-lived decline).

This morning we are trading above the 8 August 8 lows (6530), and while above here there is a propensity that we will see a move towards 6600-10 particularly with rising momentum from the daily relative strength index. Breaking out of the down-trending channel from those highs is also positive, so while the short-term RSI is looking slightly overbought we could find ourselves in a 30-point range until the index pushes through 6560.

DAX testing 9336

The DAX was not trading on Friday and has now seen substantial gains as it catches up to its counterparts this morning. The 9160-70 level provided the base and, coupled with the sharp reversal in the daily RSI, is now testing 9336 and the 38.2% retracement from the all-time highs to the lows seen in early August. Additional upside targets 9470.

Unlike the Dow Jones and the FTSE, the DAX is still trading in the bearish channel from those highs and needs to see a convincing break of 9400 and the 200-hour MA if any new challenges to the 10,000 marker are to be made. Trapped by the 100-hour MA for now, near-term support can be found at 9285 and the 50-hour MA then 9250.

Dow short-term RSI overbought

The push through the 50-day moving average at 16,931 on the Dow now acts as support in the near term, with the 17,000 marker likely creating a supportive floor between current action and the lows.

Early trade in the futures sees the 17,100 a little elusive for the time being – this area has proved to be a difficult one to surpass in the past. Nevertheless, the break out from the bearish channel from those all-time highs is positive, and while the short-term RSI is quite overbought we may see the index dip back down towards 17,000-30 today. A close back below the 17,000 level would negate the short-term breakout and see the 16,937 level back in the frame again. A break through 17,100 targets the 17,150 then 17,230.

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