Levels to watch: FTSE, DAX and Dow

Following last week’s highs, a pullback could be due for indices.

Man looking at data
Source: Bloomberg

FTSE 100 high brings likeliness of pullback

Last week saw the FTSE spike higher, bringing with it a new all-time high and optimism for further gains. However, given the trend that has been in place throughout the post-2008 bull market, I am aware that with most new highs has come relatively few gains and a subsequent pullback. An ascending trendline dating back to November which would be expected to provide resistance around 7,110 also gives me further reason to be less bullish than most in the short-term.

With this in mind, my preference is to catch a downturn should the price fall and close below the March high of 7,065. Until that happens it is likely that we could see 7,065 provide support which if it holds would grant bulls with a good buying opportunity. Thus I am bullish as long as price remains above 7,065, yet a daily close below this level would spark a bearish outlook which could bring another phase of downside with the next support level coming at 6,975.

DAX punches higher yet begins to retrace

Much like the FTSE, the DAX saw a strong week just gone, which brought new highs of 12,408 at the market open today. However, we have since seen the index begin to pullback today and for many this will be watched closely for an opportunity to buy in around 12,221. Unlike the FTSE, which has been very choppy in its uptrend, the DAX has been buoyed by Super Mario at the European Central Bank, bringing about a sharp appreciation throughout 2015. For this reason, I would expect any downside to be more minimal.

Last week’s breakout above the previous high of 12,221 will have been a cue for some to buy into the DAX. However, this is the more risky way to play a breakout and thus I am more inclined to wait for the pullback to that level as a potential buy signal. For that reason I am holding out for a move lower towards 12,221 at which point I would expect a bounce higher. Given that any position entered around that level could have a very tight stop-loss, it would mean that losses would be minimized should the DAX continue to fall past that support level.

I am also aware that many will want to get an entry and thus a bounce could come a little earlier meaning the intraday timeframes should be watched for signs of a reversal which haven’t come yet.

Dow remains within channel

The Dow Jones has failed to replicate the bullish moves seen over in Europe, instead remaining within a descending channel that has been in place over the past month and a half. Whilst today has begun in the red, I expect this to be temporary and support around 18,000 is likely to hold for another move higher.

The 18,130 level is my near-term resistance to watch out for as this represents the current upper threshold of the descending channel. In the long-term I do expect a break to the upside from this formation, however I would need a close above 18,208 for me to gain confidence of the long-term uptrend resuming and the highs being challenged yet again.

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