Levels to watch: FTSE, DAX and Dow

Low volumes and a lack of any positive catalyst saw the US trading session shed any intraday gains in late trade. This cautious sentiment also found its way into Asian markets with the Japan 225 shedding 2.38%.

Data on screen
Source: Bloomberg

Shades of 2011 are rather prevalent but one must remember that today is Tuesday, often a time for a turnaround in equity direction. We also have Permanent Open Market Operations today for the first time in five days. Today sees a plethora of macro and corporate data including German ZEW, UK CPI and some of the larger US financials reporting quarterly earnings.

While the companies JPMorgan and Wells Fargo expected to show better earnings than this time last year, the issue now lies with Europe and the slowdown in the German economy. There has been a spate of weak data coming from the powerhouse of Europe lately, and the question now is how markets might react to a poorer-than-expected reading for the ZEW Economic Sentiment number. Expectations are for a zero print but there are some brokerages that are expecting a negative figure.

Speculation that the European Central Bank will provide additional stimulus should the number be bad may well aid a bounce higher, yet with the legality of Mario Draghi’s Outright Monetary Transactions being debated this morning, one wonders whether this market has the stamina to punch higher on what is an unlikely event.

Inflation may be something elusive these days but we have all experienced at this point just how slow the ECB can be to acknowledge issues and react accordingly. The People’s Bank of China has made a move to ease policy for the second time this month which is helping to pull base metal prices off their lows.

FTSE capped by 200-H MA

The miners are in charge again this morning as a result of higher metal prices. The 6390 level which acted as rising trendline support last week has now become a barrier for the UK benchmark. A rise back through here, on a daily closing basis, would put the FTSE 100 in good stead for a push higher and allow it to resume to a 5.5-year uptrend.

Next resistance would be at 6430 then the 6461 level where the 200-hour moving average has consistently capped gains over the past month. The potential inverse head and shoulders pattern on the H1 chart has its neckline at 6390, so one would expect that this area will be difficult to overcome.

The 6300-6315 level is providing a floor in early trade and the rising daily relative strength index indicates that momentum is behind the move for now anyway. Any move down through 6300 targets the recent lows at 6240. As stated yesterday, there is little support between this level and the 6000 mark.

DAX below 8900

No matter what way you slice it, Germany looks weak and the fact that the DAX is still below the 8900 level and the neckline of the head and shoulders top implies that any bounce in index levels today may be of the dead cat variety. Often the retest of the neckline is another opportunity to sell.

That being said, the H1 chart indicates that we may be seeing a short-term double bottom which is completed (a break above 8880) would target the 200-H MA at 9063. This is also coinciding with the upper band of the bearish channel which has been in situ since September 18. The short-term trend holds a bias to the downside unless we can see the market move with conviction back through the 9000-9060 level.

Any pullbacks through 8780 retarget the lows of 8680. Below this lies 8540.

Dow resistance lies at 200-DMA

The Dow Jones has seen its fair share of triple digit moves over the past couple of weeks. These are the kind of moves that generally happen in a downtrend, but also when the market is deciding which is worse; the ending of quantitative easing or the fact that the Federal Open Market Committee does not believe that the US economy is ready for tighter monetary policy in light of the slowing global growth and low inflation levels.

Support comes from the August 8 lows at 16,250-60 and with the rising RSI we may make a challenge on the 16,420 level in due course. A push through here could see the Dow retrace to the 50-H MA at 16,504.

Key resistance lies at the 200-DMA, just shy of the 16,600 level so while this is a potential target it may take a little effort and time to affect a daily close above this important metric. A decline through 16,260 would see the index fall back to 16,175.

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