Levels to watch: FTSE, DAX and Dow

Yesterday’s poor finish in US markets underscores how hard it is for the bulls to mount a sustained rally at present. 

Source: Bloomberg

Earnings season is limiting the downside damage for the time being, and it is significant that talk of ‘QE4’ is now hitting the wires; a big change from the recent discussion on when interest rates would rise.

The slump in global oil prices is arguably quantitative easing by another method, and will certainly be welcomed by hard-pressed consumers in the developed world. However the fact that central banks now seem to be rowing back on interest rate hikes sends a signal that all is not well in the global economy.

Shire pulls FTSE down

Shire’s 26% dive this morning, thanks to the potential end of the AbbVie tie-up, is responsible for much of the FTSE’s early fall, knocking around 30 points off the index in early trade.

However, the selling has gained momentum and has taken us back to the 6300 level, wiping out most of the gains from yesterday. On the other hand, so long as the index holds above 6270 there is still the potential for a rally back in the direction of 6395 and then 6430.

Meanwhile on the downside the 6270 zone could give way to 6240 and 6210, with the inability of the RSI to move much beyond the 40 level lending weight to the latter argument.

DAX holds up, despite losses

Germany is holding up relatively well this morning, although its losses seem to be increasing as well. The 8900/8910 area is still the first target for this index, but should prove to be significant resistance to any progress back towards 9000.

On the upside a close above 8900 would shift the focus to 9040 and then 9540, while downside targets remain the 8675 area and then 8540. The bounce from oversold levels in the daily RSI is under threat once again, which flags up just how weak bullish sentiment is at present.

Dow eyes multi-month lows

Any dip-buyers of the Dow Jones would have been confounded by yesterday’s price action, which saw the early gains slip away by the end of the session. US futures are seeing further losses so far this morning, and it is becoming increasingly likely that the August low of around 16,260 is going to be tested once again. A break through here would target 16,000, with potential short-term targets being 16,160 and then 16,070.

On the upside a move to 16,530 would point the way to the 200-DMA at 16,600, then on to 16,680 and 16,820. However the Dow has yet to move into the oversold zone, leaving open the possibility that we are about to witness fresh multi-month lows here.

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