Levels to watch: FTSE, DAX and Dow

Yesterday’s downward momentum has continued into the new day, with European indices still in the red, ahead of potentially major news from the European Central Bank.

City of London
Source: Bloomberg

What began as a downward move yesterday turned into a full-blown rout for equity indices, thanks to a combination of growth fears, geopolitical worries and concerns that the ECB is not planning anything spectacular for its next meeting.

FTSE oversold

It seems difficult to believe that the FTSE is now almost back to the 6500 level, having breezily moved through the August lows. A near 5% move from 6850 has carried the index all the way back to the oversold zone and potentially major support at 6500. 

Any close below here then takes us in the direction of 6450 and then 6400; the lows of December 2013 and January/February 2014. On the upside the index needs to target 6580, and while the atmosphere looks firmly bearish the momentum indicators such as MACD are now at levels that have often seen the start of extended rallies.

DAX bounce some way off

The absence of an oversold condition on the DAX should worry those looking for a bounce, as it suggests we may have some way to go yet.

The index has dropped below support at 9360 but if it can close above here there may be hope of some short-term buying momentum. Below this we look towards 9200 for possible support and then on to 9000 if this fails to hold.

Any rally to the upside must close above the 50-DMA in coming days and then recover the long-term uptrend at 9580, which would cancel out the bearish scenario.

Dow falls below long-term trendline

The Dow Jones now seems to be set on a repeat of the August test of the 200-DMA, which currently lies around 16,590.

If this area is broken then the August lows of around 16,380 represent the next area of support, and 16,000 thereafter. A sustained rally must see a close above the trendline at 16,890 and then a move back above 17,000.

IGA, may distribute information/research produced by its respective foreign marketing partners within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

This information/research prepared by IGA or IGA Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

See important Research Disclaimer.