Technical analysis: key levels for FTSE, DAX and Dow

Everyone expects a correction until it actually happens. Triple-digit losses on the Dow Jones and a drop back to 1930 for the S&P 500 all added up to a volatile session.

A chart
Source: Bloomberg

The actual falls in the day amounted to little more than 2%. The question now is if the release of the non-farm payrolls number will exacerbate or medicate.

Strong growth is expected, with a consensus view that 231,000 jobs will be added. Wage growth, given that this is the focus for the Federal Open Market Committee, will be the real number to watch. A 0.2% growth in average hourly earnings is expected. Anything higher than this will aid dollar strength and heighten the speculation and timeframe for a hike in interest rates.

FTSE drops through 200-DMA

Now that the FTSE has dropped back through 6710 and the 200-day moving average, we must seek the support of the 11 July lows, which were around 6650. The rising trendline support from the lows of August 2011 has been punctured in early trade, but a daily close below it would have greater conviction than the current intraday price action.

The decline on the hourly chart is rather steep, and while below the 6680 level there remains a risk of a return to the recent lows of 6640-50. The relative strength index is indicating a degree of positive divergence so we may well see a retracement towards 6700-10.

Any moves through 6643 take us back towards the April levels of around 6620 with 6550 below that.

DAX supported by 9215

The DAX has been punished and sentiment towards this index looks more than a little dented. Price action has fallen and closed below the 200-DMA for the first time in two years. The daily RSI is looking a tad oversold yet the market continues to push lower. Some of this will be the triggering of stop losses below that key metric. The next support is at 9215-20 then 9180, then 9080 (April low) beneath that.

Given the steepness of the pullback, we may see a bounce on some profit-taking which would target 9350-60.

Dow price action back at 16,516

The rising wedge formation has completed on the Dow with price action back at 16,516. The 16,500 level is very important here as it marks the rising trendline support from the November 2012 lows.

Beneath that is the 200-DMA at 16,355. The RSI is looking oversold on the same timeframe and on the hourly chart we have mild bullish divergence potential. The 16,532 level is the 50% retracement from the May lows to the all-time highs, and this should now serve as resistance with16,600 above that.

Intraday, 16,445 has acted like a congestion zone in the past – a dip through here takes us back towards the 200-DMA.

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