Levels to watch: FTSE, DAX and Dow

Equities are in retreat this morning after a torrid session last night that underscored the evident fragility of this rally.

German stock exchange
Source: Bloomberg

Markets turned sour very quickly yesterday and there seems no let up this morning. Valuation concerns, especially in technology and biotech stocks, appear to be at the forefront, but Greece worries are also having an effect.

FTSE eyes 7000

For the moment the FTSE 100 is the least affected by the current outbreak of bearish sentiment. Buyers are stepping in around 6930, close to the 14-day EMA, but with the stochastics and daily relative strength index rolling over I suspect we may see additional weakness here, with a downside target towards 6850.

On the four-hour chart the 50-period EMA is providing support, while a bullish crossover on the stochastics appears to be in the making, as buyers come in. A close below 6950 would undermine this more optimistic outlook, while a recovery of 7000 would signal that the buyers have not lost control just yet.

DAX could test 50-DSMA

The retreat from all-time highs continues, with the index now at its lowest level in over two weeks. A firm close below 11,700 would signal a test of the 50-day SMA at 11,170, a theory given credence by the steady decline in momentum indicators such as the daily RSI.

As with other indices some buying may lift the DAX from its lows in the short term, but the steady downtrend from the 13 March peak is still in effect. Moving averages on the four-hour chart are turning lower, with the 20-period EMA about to cross below the 50-period EMA, a bearish signal. Short-term rallies should be viewed as selling opportunities for the time being.

Dow bulls look to 17,650

US markets went into panic mode last night, with the Dow Jones finally breaking through the October uptrend line that I had highlighted last week. There is another possible line of support that intersects with the lows of October and February, which is currently stemming the selling around 17,630. There is also a degree of support from the 11 and 13 March lows at 17,650 that may provide a point around which the bulls can rally.

However with daily RSI and stochastic readings now firmly bearish I expect the 200-day SMA to come under pressure. A close below here would target the lows of December 2014 and February at 17,130. A sharp oversold reading on the four-hour chart suggests we may see short-term bounces, but these are likely to be sold unless they can move firmly back through 17,700.

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