Levels to watch: FTSE, DAX and Dow

Negative news stories are coming fast and furious and all can be considered to be a driving factor behind the current sell off. 

Traders studies multiple screens
Source: Bloomberg

Global growth is waning; Greece is back in the headlines and even the Bank of England chief economist has stated that the UK economy is ‘writhing between ecstasy and agony’.

The good news is that any interest rate hike expectations have for now been pushed out to the latter half of 2015 in the main, owing to low inflation. The risk is, if the policy makers have lost faith in the recovery, this may find its way into market sentiment and be to the detriment of riskier assets.

FTSE fails to close above 6200

Having come dangerously close to the 6000 mark in yesterday’s session, the FTSE appears to be finding support around the 200-weekly moving average. While failing to close above the 6200 level, the index appears to be locked in a range with little in the way of macro data to drive sentiment until later this afternoon.

Yesterday’s price action produced a hammer candle which, if confirmed with an up day today, could see the FTSE make a break higher towards the 6280 zone. We would need to see a convincing move through the 6220/25 level for this to materialise.

The daily relative strength index is slightly oversold, while the hourly momentum indicates that there is still some potential for upside.

DAX RSI eyes 30 level

Likewise the DAX has produced a daily hammer so once again we await confirmation and look for the daily RSI to rise above the 30 level. The index is currently trading above the 8600 level, and we may see a spike towards 8680. Any failure to hold above 8600 would take us back to 8530. Yesterday’s lows should be watched at 8350, as a fall through here would open up a path towards 8090.

The uptrend from the August 2011 lows has been breached with aplomb, and the 100-week MA is standing in the way between current price action and any perceived upside. A move through 8750 could see the DAX break towards 8903.

Dow holds above 16,000

The Dow Jones has succeeded in holding above the key 16,000 level on a closing basis and, while the metric has been tested, the rising RSI on the daily chart is indicating that we may we looking at a 200-point range on the index with upside capped by the 16,180/16,200 level.

The trend line support from March 2009 lows has ultimately been breached and we are some 7% off the all-time highs at this point, so we would really need to see the Dow retake the 16,400 level if the current malaise is to be cured.

The bearish channel from the 9 October highs has been broken and we may be looking at a double-bottom formation on the same timeframe. A move through 16,200 targets 16,260, then 16,470.

A move back through 15,860 targets 15,670.

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