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Levels to watch: FTSE, DAX and Dow

We are currently in the midst of some turbulence in equity markets and the extreme swings in global indices suggest that we are in a downtrend for the time being. 

Man reflected in screen showing data
Source: Bloomberg

Resource stocks are distinctly out of favour this morning while concerns surrounding Germany slipping into a recession are not exactly helping the sentiment. We can also expect to see market reaction to the various Federal Open Market Committee members’ rhetoric later this afternoon.

UK construction output for August was poorer than expected falling 3.9% compared with July. However, the trade balance was a little better, falling to $9.09 billion from £10.14 billion. This could, in part, be attributed to the weaker pound of late but equity markets have shrugged this off for now.

FTSE could find support at 6254

The FTSE 100 is now at 6316, a 52-week low, but is finding a degree of support here. Some positive divergence on the daily relative strength index could indicate that we run sideways until the US markets open. The 6400-10 level is acting as resistance for now.

The H4 chart has an established bearish channel since the 19 September highs but price action is now testing the lower band of said channel so any break above 6425 could see a move towards 6480. The 50-period moving average on the same chart at 6520 looks to cap any moves above this. Below 6300 support may be found at 6254.

DAX targets 8910

The DAX has slipped below the 8910 level pointed out yesterday. This represents the neckline of the head and shoulders pattern. Ideally a close above 8910 would help negate the possibility of more downside from here. Any close below it will mean that 8910 will become resistance and any tests through it will be limited to 8960. Positive divergence on the H1 chart helps support this and any move through 8950 could see a run back towards 9010.

Dow to test 200-DMA

It is interesting to note that while European indices have surpassed their August 8 lows, the Dow Jones is still trading some 2% above its August low. The Dow has now slipped back through 16,705 to test the 200-day moving average once again which has provided a decent area to buy in. Last time this occurred, prices pierced through the metric before rebounding. Based off this, we could well see the Dow shed another 1% before catching a significant bounce.

On the H1, the price has found a low at 16,620 (in futures trading) and this coincides with the bottom band of the bearish channel. The next support below 16,620 is 16,570.

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