Levels to watch: FTSE, DAX and Dow

Markets are bouncing back from yesterday’s lows, as Greek fears recede slightly, although a dire Chinese inflation figure reminds us that all is not well in global markets.

German stock exchange

After the heavy selling of yesterday, it is hardly surprising to see buyers creeping back in and sellers taking some money off the table. In the week preceding options expiry it is not unusual to have a bounce before fresh selling takes us lower on Thursday and Friday.

The lighter economic calendar today means that we are in for more indecisive price action, and while the short-term outlook remains bearish, any view that extends beyond the end of this week needs to take into account the strong seasonality factors that will come into play and drive markets upwards towards the final days of December.

FTSE eyes 6750

The FTSE 100 closed near its lows for the day on Tuesday, but in the overnight session the futures have pushed the index higher. It finds itself sitting above the 50-day moving average this morning, with 6540 providing a degree of support.

If weakness returns in coming days another test of levels closer to 6500 cannot be ruled out, with further support possible around 6470. Momentum indicators continue to point towards further weakness, although this is likely to be of short duration.

A close back above 6640 puts the index on course for another attempt to clear the November/December high at 6750.

DAX targets 9950

After all the excitement yesterday it is sobering to realise that the German index is only 2% down from the peak of last week. Thus we still sit in pullback territory here, as the rally takes another breather.

The 9870 zone is providing a degree of support once again, after buyers stepped in yesterday to defend 9800 once again. On the hourly chart 9850 has propped up the market so far today, with a first target being the highs of Tuesday morning around 9950, just below the 200-hour MA.

A close below 9800 would suggest support at 9770 and then 9700, while further rallies above 9900 put the index on course for last week’s peak around 10,100.

Dow could find support at 17,716

Yesterday’s action in US markets was the very definition of a handbrake turn. On the Dow Jones, a probe in the direction of 17,650 was swiftly repulsed, sending the market leaping all the way back to 17,800 within the space of a few hours. However, for now that is as far as it can go, with attempts to push above this level knocked back.

As Brenda observed yesterday, 17,775 and then 17,716 would be support zones to look out for, and indeed a drop back towards here would be enthusiastically received by bulls waiting to enter for the pre-Christmas rally.

Immediate upside targets lie around 18,000, the totemic round number that so exercised the market last week when the rally finally ran out of steam and the Dow discovered that it was possible to go down as well as up. 

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