Levels to watch: FTSE, DAX and Dow

Sovereign debt concerns are back on the agenda this morning, thanks to another spike in bond yields that has put sovereign risk back in the spotlight. 

Data on screens
Source: Bloomberg

Today’s session could hardly be less exciting than yesterday’s, but already the open has seen some hefty selling, with indices giving back the gains of last week. The lack of a Greek deal is hardly news, with the bigger concern being the ongoing crisis in bond yields – such rapid moves make life difficult for portfolio balancing and have prompted hefty bouts of volatility. This underlines the point that all is not well in financial markets, even with QE programmes still active.

FTSE could test 6837

Most of the gains made in the wake of the election have now been surrendered, with the failure to hold above 7000 illustrating how hard it is for buyers to construct a narrative. The 50-day simple moving average at 6955 may provide some support, followed by the 6900 area that intersects with the rising December trendline – still a force to be reckoned with.

A bounce in coming sessions for the FTSE 100 must clear 6960, and then on to 7100, while further weakness raises the possibility that the price will test the 100-day SMA at 6837, and/or the 6800 area.

DAX eyes 11,700

Today’s early morning move down confirms the idea that the descending channel still holds. First support is possible at 11,159, the 100-day SMA, which would take us toward the bottom end of the channel in any case. As with the FTSE 100, the rising trendline from the lows of late last year is still in effect, and this would see support enter the fray around 11,000 itself.

A rally would need to break the top end of the descending channel, around the 11,700 mark, before moving on to challenge the 50-day SMA at 11,834 and then the key 12,000 level. Only then could we make a case for a run to new all-time highs for the DAX.

Dow could find support at 17,800

Yet again we have seen how 18,200 has been too much for the Dow Jones to break, with the latest move propelling us back to 18,035 and the 14-day EMA. A continuation of this move suggests we will test the 50-day SMA at 17,945, with possible support around the 17,800 area.

Four-hour stochastics are still bearish and likely to remain so, and thus I would argue the downward scenario will prevail today and possibly tomorrow. Only a move back above 18,150 would cancel out the bearish outlook. 

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