Levels to watch: FTSE, DAX and Dow

Indices continue to sell off following major resistance earlier this week.

German stock exchange
Source: Bloomberg

FTSE returns to lower end of channel

Continued downside in the FTSE 100 has brought it back towards the lower end of the ascending channel that we have been watching throughout 2015. Typically when we move to the lower boundary of this channel, we have seen very long wicked candles which if replicated would mean a highly volatile day to come, which includes strong initial selling followed by a recovery of sorts to create a hammer formation.

With that in mind, I do expect further downside, yet as seen before, the buyers would likely come in around channel support, currently at 6895.

DAX continues to trend lower

The DAX has continued its move lower having sold off from the upper boundary of the descending channel in place over the past month. Signs point to further downside, which if consistent with this pattern would likely lead to buyers coming back in around 11,000. However, given that we have seen such strong selling, I wouldn’t be surprised to see support come around the 7 May low of 11,166 which coincides with the 100-day SMA.

That said, I do expect further downside overall and remain bearish for a move back towards 11,000, despite the likeliness of retracements on the way which are seen as selling opportunities.

Dow breakout fails to gain ground

The upside breakout seen on Friday for the Dow Jones from a symmetrical triangle has failed to materialise into anything particularly notable, with price immediately moving back into the formation the following trading day. A clear area of previous resistance around 18,200 proved too tough an ask and now we are moving into a more bearish phase.

I expect to see continued selling with 17,920 likely to be seen in the near future. Any move below that would then look towards the 17,770 region. That being said, near-term support provided by the 50- and 100-period (four hour) must be navigated through first. An intraday close below that region (18,025) would provide me with the signal that we are going to move lower.

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