Levels to watch: FTSE, DAX and Dow

The first day of the week has seen markets retrace slightly, with the FTSE 100 hit particularly hard thanks to the ongoing weakness in energy and raw material stocks. The weak finish in the US last week has not helped matters either.

A man next to the DAX logo
Source: Bloomberg

Markets are still unable to work out whether the slump in oil is a good or a bad thing. It probably depends on your viewpoint, but it certainly doesn’t help an index like the FTSE 100, which has such a big contingent of oil and oil-related firms. The big events of the week come on Thursday and Friday, as the European Central Bank meeting and then non-farm payrolls take centre stage.

FTSE breaches 200-DMA

The steady retreat from the 21 November high goes on. The FTSE 100 has breached the 200-day moving average this morning, although for the time being the 6640 level is doing well to prevent further losses.

A close below 6640 targets 6600 and then 6560, although I would be cautious about pursuing the index much below that. The index needs to work off its big move higher, so a modest pullback would be entirely within the bounds of probability.

Meanwhile the first upside target is around 6755, and then on to 6805.

DAX targets 10,000

The 10,000 level on this particular index is still, to borrow from Shakespeare, a ‘consummation devoutly to be wished’. It got to within a whisker of the magic number and has since edged lower.

Thus 10,000 is the main hurdle that needs to be breached in the short term, with the summer highs of 10,050 just above that. The 9900 region is a first area of possible support, followed by 9840.

On the hourly chart the steady uptrend that has prevailed since 17 November is still unbroken, having been tested early on today. Now we need to see if this was just an outbreak of pre-ECB nerves or the beginning of something more substantial. A more significant pullback would take us in the direction of the 200-hour at 9760.

Dow below 200-hour MA

The 17,900 level still stands as the top for the Dow Jones, and the move lower that began on Friday seems to mark the beginning of a modest move lower. Full marks however to the Dow for staying overbought throughout November, defying the bears who expected it to slump.

Now we look for a move lower to 17,600, with further support in the area of 17,525. The index has pushed below the 200-hour MA, with the 50-hour moving lower too, so it will be interesting to see whether we finally get a bearish crossover on these two indicators. 

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