Levels to watch: FTSE, DAX and Dow

Although we’re seeing gains in Europe and the UK this morning, the fact that we have failed to break significantly higher in recent sessions sends a warning signal.

A chart
Source: Bloomberg

With the exception of the Dow Jones, which is always an odd one due to its price-weighted composition, most major indices have lost ground since the recent peak seen at the end of last week in the wake of the Bank of Japan meeting. Much of this is likely down to caution ahead of the big events of this week, namely the European Central Bank meeting on Thursday and non-farm payrolls on Friday.

Many investors will have watched Friday’s sharp move higher and concluded that the prudent course of action was not to chase this market. With so little important news in the first half of this week, this course of action was made even more correct. Better to await developments in the first week of the month and then reassess the situation.

FTSE could retest 6300

Yesterday the index failed to hold above 6500 and the same is occurring in the early part of today’s session. An inability to maintain the price around this point opens the way to additional, if limited, downside. The 100-week moving average is still acting as a barrier, and a failure to close above here this week would suggest that we are headed for a retest of the 6300 area, particularly if the ECB and/or NFPs this week are disappointing.

On the hourly chart we can see that the index has lost the rising trendline from the 16 October lows, although the test of the 200-hour MA yesterday saw the buyers step in. A break of this indicator would change the short-term trend, targeting 6375 in the first instance and then 6335. The immediate upside target is the Friday peak around 6550.

DAX supported by 100-hour MA

The hourly chart on the DAX shows how the German index is in a steady retreat from the area above 9300 that marked the limit of progress on Friday. For now the 100-hour MA is holding this market up, while a drop below would take us back to yesterday’s lows around 9150 and thence on to the 200-hour at 9125.

On the daily chart the 50-day moving average capped progress in the last three sessions, and while the daily relative strength index is still rising a failure to break through the 50-DMA would be a markedly bearish development. A close above it would target the 200-DMA at 9500 and the top end of the current descending channel.

Dow in overbought territory

Of the three indices discussed here, the Dow Jones still looks the most positive. It has bounced back above 17,400 and remains just above the highs seen on Friday. However, it now sits in overbought territory for the first time since 18 September. A drop back from this zone would be the needed bearish signal here.

Declines would first target the long-term uptrend, with potential support around 17,150, followed on by 16,930, the 50-DMA.

On the hourly chart, yesterday’s dip below the 50-hour MA was bought, but the moving average has flattened out in recent days, sending a warning signal that the hefty bounce from 16 October may have run its course. First support is likely around 17,280, Tuesday’s low, followed on by the 200-hour at 17,080.

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