Levels to watch: FTSE, DAX and Dow

Last year traders complained about the lack of volatility and ergo trading opportunity in financial markets, and I imagine the tables have turned quite considerably now. 

Reflection of a man looking at screen of data
Source: Bloomberg

The wild swings that we are seeing in equity indices tend to indicate that a downtrend is upon us, and a return to the recent highs is not a certainty.

The indices below fell again yesterday but managed to recover off the lows. However, with the plethora of macro data, including eurozone CPI and the Federal Reserve minutes later this evening, there is a lot of downside risk. That said, the Fed has in the past succeeded in assuaging investor fears and helped indices to bounce higher. The question is whether this can happen again with the backdrop of Grexit, oil price declines and a general risk-off mood.

With the eurozone now officially in deflation, the onus is on the European Central Bank to act aggressively, yet with the specter of the Greek elections taking place on the 25 January, one has to wonder if Mario Draghi will take action or attempt to soothe the markets with the usual jawboning.

FTSE could see opportunity for bears

Oil price declines will continue to put pressure on the FTSE 100. Even though the supermarkets are putting in a good run this morning, it is likely to be unsustainable. Many are preparing to short these individual stocks on the rally so this will likely mean that the positive start will only provide an opportunity for the bears.

While below the 6490 level, the bias is for downside. The lows of 6321 yesterday provided some support and the rising relative strength index on the daily chart has also helped the technical bounce. The 50-hour moving average is capping the gains right now around 6404 – if we manage to break above this then the 6450 (50% retracement level) will likely act as a barrier akin to yesterday’s price moves.

A move back through 6321 sends us back to 6276.

DAX eyes 6600

Similar action is to be found on the DAX with the 50-H MA again acting as a magnet. A move through here could see the DAX tackle the 6580-6600 level but the 100-H MA is a decent level to short. The rising RSI on the same timeframe indices that we could see the index squeeze higher.

Residing at 9631, it has been a good metric cap over the past few days. Yesterday’s lows around 9390 (76.4% Fib level on H1 chart) remain the target today. A move down through here would see the 9312 level in view.

Yesterday's support should now be a barrier for Dow

A dip through the 17,300 level was seen as a buying opportunity last night – this area around 17,250 has been an area of support for the index in the past also. Resistance now lies at 17,466. The bottom of the recent consolidation range was the support area to watch yesterday and it should now revert to being a barrier.

We may well see a test of the 50-H MA at 17,502 however. Again, this moving average has been a useful sell zone this week. A move down through 17,246 targets 17,194.

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