Levels to watch: FTSE, DAX and Dow

Market sell off stutters as we reach a crucial inflection point for another possible move lower. With the FTSE 100 currently at support, we could see the UK market lead Europe and the US.

Data
Source: Bloomberg

FTSE bounce fails to hold as we return to key support

The bounce we saw mid-week in the FTSE has failed to hold with a strong Friday sell off providing the platform for today’s significant gap lower on the open. This has brought us back to the 38.2% retracement support level (6723), which is in close proximity to today’s low so far.

The question is whether we will break below this level for another round of selling to ensue. Given the relative brevity of the move higher last week, I am inclined to believe we will see a break below 6723, yet until that happens I am more neutral as a second bounce higher also seems likely. Clearly these markets are significantly impacted by the Greek crisis and as it stands, there is not going to be any positive resolution for some time. This could drag the indices lower yet.

DAX returns to inside trendline support

The bounce higher from the 38.2% retracement (10,856) last week saw us move back up to the 23.6% resistance point and start to sell off. We are now seeing a bounce higher from the inside trendline and that would point to an initial move up to 11,166 for the DAX. Essentially a move below this trendline (currently 10,990) would point towards the 10,856 level coming into play.

With the stochastics at oversold and likely to turn higher soon, there is a clear possibility of a bounce and should we see it occur without moving below 10,856, then it would mean the creation of a higher low. However, for now we await the response to this trendline which will be key to determining whether we are set to create a new higher high (above 11,485) or lower low (below 10,856) to give medium-term direction.

Dow sells from triangle apex and holds up in no man’s land

Much like the DAX, the Dow Jones is held up some distance above the major support level that provided the bounce higher last week. Essentially we need to either see a break below 17,686 to bring a bearish continuation picture into play, or else a move higher from support above 17,686, which would point towards the creation of a higher low and thus a more bullish outlook. With the FTSE representing the one major market which is currently at the inflection point, it is likely that the Dow is holding up owing to the relationship with that market.

Thus a break below 6723 in the FTSE could bring about a greater likeliness that the Dow will fall below 17,686. But for now, we are in a wait and see mode to determine whether we are going to see a break below 17,686 (which would point towards 17,549) or a bounce higher from here (pointing towards 18,111).

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.