Levels to watch: FTSE, DAX and Dow

A mixed bag of manufacturing data has resulted in a lack of direction in European indices this morning. 

Source: Bloomberg

Italy in particular looks worrisome, while the Chinese non-manufacturing PMI has fallen to a nine-month low reviving the recent concerns about the slowing growth in the second biggest global economy.

With US earnings season winding down, the UK reporting period will now become the focus.

FTSE showing strength

The UK benchmark has been displaying quite a bit of strength over the past few trading sessions, and while above 6530 could well push higher from here.  Intraday resistance is making the going tough at 6560 – this coincides with the 100-week moving average which capped last week’s gains, so a push through here will target 6583 (61.8% retracement) and then the 50-DMA at 6606.

A daily close above this metric would put the FTSE on a move towards the confluence of the 100- and 200-DMA at 6690.

Support comes in from the 50-H MA of 6504 and, with the degree of relative strength index divergence on the same timeframe, we may see the index consolidate between 6500 and 6560 before breaking.

The next support lies at 6460.

DAX hampered by 50-DMA

Having pushed back above the trendline support from the September 2011 lows, the DAX looks slightly hampered by the 50-DMA coming in at 9321. A daily close through here would see the 61.8% retracement level breached with good conviction, and set us on a course for a test of the 100-DMA at 9450/60.

In a 4-hour bullish channel from the 8400 lows, the DAX needs to break the 9345 marker in order to target the 100-DMA and then 6508 (the upper band of the channel.)

For now the 9300 level seems a bridge too far, so we may see the index fall towards 9250 before deciding on any further upside moves.

Price action since the 30/10 has been rather parabolic, so a degree of consolidation with the limited potential to fall back towards the 50-H MA at 9213 could be on the cards today.

Dow running out of steam

The Dow Jones has succeeded in retracing back towards the highs of 19 September (all-time highs) and is currently running out of steam around the 17,400 level. What is astounding is that the retracement took a shorter time to occur than the actual fall. Daily RSI is looking slightly overbought at current levels, so we’d ideally like to see a daily close above the 17,365 marker if additional upside is to be seen in the short-term.

The hourly chart is indicating negative divergence – a fall through 17,330 targets last week’s initial target at 17,240/50.

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