Levels to watch: FTSE, DAX and Dow

Indices are showing increasing signs of weakness as the FTSE and Dow begin to show reversal signals at crucial resistance levels.

City of London aerial view
Source: Bloomberg

Could trendline resistance put a stop to FTSE rally?

The past week has seen almost 500 points of upside in the FTSE, managing to create a new 47-day high yesterday. However, the price appears to be showing possible signs that we are due a move lower, in a bid to take back some of those gains. Yesterday saw the price reverse lower from an ascending trendline from late August, posting a shooting star candle.

The price has subsequently moved down to near-term support at 6315 which is joined by another near support level at 6298 (September high). Should it move through these two levels, I would become more confident that we are going to see another move lower towards 6250 and 6123 support levels. Should we see that downside move, I would become progressively more convinced as it moves through 6276 and 6255. Ultimately any selloff could quite easily take us back to 6070 or 6023, but we are awaiting further signals that this is truly that top.

FTSE chart

Is short-term lower low a warning for DAX?

The DAX has posted a lower low for the first time since the beginning of this recent rally. This comes off the back of a failed new high which was a warning sign in itself. For now the price is beginning to bounce higher once more so the interest will be whether it can rise back above 10,045 within this current move. A failure to break back above 10,045 points towards a move to 9864, whereas a break above 10,045 would likely see a continuation of the rally.

Unlike the FTSE, this index isn’t as adversely affected by falling oil prices, and thus I wouldn’t expect as much downside for the DAX as the FTSE should oil prices continue to fall. However, the signs are here that the index could be weakening after a week of strong upside. 

DAX chart

Dow showing signs of weakness at key resistance level

The Dow Jones is also showing signs of weakness today, following yesterday’s inability to break above the 16,937 resistance level (September high). The subsequent failure to create a new high is a sign of falling confidence in the upside momentum. Thus we have both the FTSE and Dow at crucial resistance levels, while the indices create failure swings in price action. This does not mean we are definitely seeing a top here, but the signs are starting to stack up that a selloff could be on the cards. The key here is a break below 16,765, which would point towards 16,700 which if broken turns towards the likes of 16,475 and 16,250.

Dow Jones chart

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