Levels to watch: FTSE, DAX and Dow

With oil prices once again in freefall, its little wonder that equity indices are choppy, and with most in agreement that oil has yet to see a bottom we can probably expect to see ongoing volatility. 

Charts on a screen
Source: Bloomberg

While lower oil prices are considered good for the economy, the fact that some of the decline is possibly stemming from a lack of demand rather than a supply glut is helping to dent risk assets.

FTSE finds support at 6450

Supermarkets have led the FTSE slightly higher but naturally the oil companies are creating something of a headwind for the index.

Price action remains beneath the trendline support from the March 2009 lows, so we’d ideally like to see the price end the week above the 6560/70 level to implicate that the uptrend is again relevant.

Currently trading below the major moving averages, the FTSE has found support at 6450 this week. Any decline through this metric would see us revisit the 6405 level, and the early January lows at 6330.

The short-term chart has adhered admirably to Fibonacci retracements, utilising the highs seen at the end of December and those 6 January lows. Early trade has seen the 61.8% retracement at 6530 act as a barrier to upside, with the trendline resistance also creating a problem around 6560/70.

The relative strength index is not overbought, and we are trading above the main moving averages which are converging around the 6490/6500 level and 50% retracement level.

A break above 6550 targets 6590. Only a move through here would argue for a retest of the highs seen in December at 6658.

A break back through 6500 would indicate a false break higher and would be deemed as a bearish scenario.

DAX trading above 50-DMA

The DAX is presently trading above its 50-daily moving average, testing the trendline resistance from the all-time highs. A break above the 9815/20 level, preferably with a daily close, would be a bullish move, and likely see the 9920 level targeted in the short term.

Even if we break the 9520 level today, the intraday resistance at 9860 may well present a problem, as stated by Chris yesterday.

Despite the fact that the DAX is trading above the main moving averages, the bearish divergence on the hourly RSI suggests that sideways to a downside bias may be in the offing.

Support arrives at 9730 and the rising trendline support from the early January lows at 9708. Below that, the 50% retracement level at 9664 will be important to watch. A breach of it would see the 9600 level back in the frame.

Dow moves away from January lows

The bearish RSI divergence on the longer-term Dow Jones charts could well indicate that this index will go lower over the medium term, and the triple digit moves since the beginning of 2015 would support this.

Last week’s candle looks remarkably similar to the ones that pre-empted the v-shaped recovery in October and mid-December. In fact, if you look back to similar hammer candlesticks following downside corrections in October 2013 for instance, we have generally come to expect an average rise of around 4% in the subsequent month.

Price action has succeeded in rising off the January lows for now, yet with weekly RSI starting to turn down and daily RSI offering fairly obvious bearish divergence and trading below the 50 level, we may be a little optimistic to expect a jump higher in the near term.

The 50-DMA at 17,750 is capping gains and, while we have seen the 17,800 level tested, it would be nice to see a daily close through the moving average.

Decent support is found at 17,570, coupled with the rising support from the October lows.

Again the hourly chart has been kind to Fibonacci aficionados, with the 78.6% retracement coinciding with trendline resistance from the late December highs proving that the 17,925 level is still a bridge too far for the Dow.

Support at the 38.2% level has been a useful metric also, with the confluence of the short term averages around 17,720/30 holding us back in early futures trading, and may present a shorting opportunity. A break above here targets 17,780 then 17,820.

Below 17,581 the Dow would target 17,494 in the short term.

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