Levels to watch: FTSE, DAX and Dow

Another Monday, another gap lower for equity markets, yet with markets moving higher it will be prudent to watch for similarities in what we saw last week.

A man on a phone looking at data
Source: Bloomberg

FTSE gap gives way to gains but they could be temporary

The news overnight that the Greeks have voted against the latest bailout proposals led to substantial overnight gains across the board. Much like the gap lower last Monday, the initial weakness appears to have been somewhat overshot and we are seeing a substantial amount taken back as the FTSE climbs higher. However, much like the moves seen last week, I do not expect us to move back towards the range seen throughout the second part of last week (6568-6623) anytime soon. Thus any effort to regain the 6568 (50% retracement) level is likely to be sold into. While I do expect to see further negotiations in Greece, an immediate agreement is unlikely to happen immediately, and as such I doubt anyone will become too bullish too soon. Thus I am bearish upon seeing a reversal sign in the 6550-6568 zone. Last week saw a bearish engulfing pattern signal the end of the resurgence, could we see the same today?

Post-gap bounce in DAX likely to be short-lived

The DAX’s situation is similar to the FTSE in that the initial reaction to the weekend news has been overdone, and we are seeing much of those losses taken back in the early morning. The price currently lies 175 points off Friday’s close, while at one point we stood some 382 points lower in the overnight session. The obvious resistance point to look for is the 11,000 handle, yet ultimately the previous week has shown us that the market will simply turn on a dime and not necessarily at any particularly notable level. Thus I would be more interested in watching intraday charts for reversal signals such as double-tops (low intraday timeframes) or bearish engulfing and evening star reversals (longer intraday timeframes). Ultimately, I do believe the gains we are seeing in recent hours have limited legs and we will begin selling off later in the day.

Dow following European lead, with significant losses overnight

Three for three, with pretty much exactly the same picture as the FTSE and DAX. Greek voters have managed to push the Dow Jones into an initial 170 point gap lower, which is being made up now. I believe we will similarly see this current move higher sold into, and thus I am bearish despite the current move higher. Watch for bearish reversal signals and should the price reach it, I would expect a sharp move lower from the 17,660-17,686 region.

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