Levels to watch: FTSE, DAX and Dow

While we may see some small rebounds in equity markets today, the weaker overnight data from China will cast a shadow that should cap gains in the short term.

Data on a board
Source: Bloomberg

Yesterday saw markets retreat rapidly in the UK and US, although the eurozone’s indices are still looking relatively healthy by comparison, thanks to the impact of quantitative easing. However, the theme of yesterday, the stronger dollar, is not going away, especially with just a week until the next Federal Open Market Committee meeting. At this point we might see buyers return if the statement is more dovish than anticipated, but for now the sellers have the upper hand.

FTSE could fall to 6620

Although still up 2.7% on the year, the FTSE 100 has given back an awful lot of ground in just three sessions. Yesterday’s swan-dive took us all the way back to the 200-DMA, wiping out all moves made since mid-January.

For now this key moving average is doing its job, providing support, so the first target on the upside is the 50-day moving average at 6760, with a daily close above here providing some respite. A close below the 200-DMA, which is still possible given the rapid drop in the daily relative strength index and stochastics would open the way to 6620 and then 6560.

On the four-hour chart the index is heavily oversold, while stochastics have posted a bullish crossover. A small rebound would target 6740 and then 6770. The hourly chart has seen a rally back to the 20-hour MA, but this has now faltered, and any move lower targets 6700 and below.

DAX clings to 11,500

Indices in Europe were not particularly affected yesterday, but the DAX barely registered the drop at all. Instead this index continues to cling on to the 11,500 level, with the uptrend on the hourly chart still intact. Momentum indicators such as the daily RSI have yet to show any bearish signs, so while it may not be wise to chase the market at this point, the time for real selling has arguably not arrived yet.

The hourly chart saw a test of the 200-hour moving average yesterday, but this brought out the buyers, as was the case a week ago. Until the 200-hour MA is broken therefore, or the 50-hour MA crosses below it, caution is advised.

Dow RSI still bearish

All eyes on the Dow Jones turn to the rising uptrend line from October, which is a short distance away at 17,630. A close below here would be firmly bearish and open the way to the 200-DMA at 17,290. The RSI and stochastics are still bearish, even if they are nearing oversold levels that would indicate caution should be exercised.

A short-term bounce from the October trendline would likely carry the index back in the direction of the 50-hour MA at 17,840, at which point sellers should watch for a potential turn lower.

Until the daily stochastic indicator turns bullish once again the emphasis remains on the downside. 

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.