Levels to watch: FTSE, DAX and Dow

Indices spike higher, yet how long will it last?

Data reflected in a persons glasses
Source: Bloomberg

FTSE respects trendline to bounce higher

Yesterday’s selloff caught a significant bounce overnight, which brings into play a possible near-term recovery of a similar ilk of that seen in early and late July. The bullish engulfing pattern evident on the four-hour chart provides a more positive outlook for the time being, but the key resistance is yet to come in this recovery with a range of lower shadow bottoms between 6635 and 6650. Thus while things look relatively bullish given the size of this bounce, I would be hesitant to call for further significant gains until the price moves above the 6650 mark. A move above this level would bring a target around 6720 (the top end of the symmetrical triangle).

DAX finds support on 200-day SMA

The massive selloff seen in the early part of the week has been given a brief respite today, with the price moving higher from the 200-day SMA coupled with the ascending trendline from October 2014. This provides a likely source of a bounce today and thus, while the price remains above these two rising support indicators (currently 10,985), I will be looking for further gains in the index. However, we have now seen a new low and lower high which means that there is a more bearish theme developing which could further develop in the medium term. The key here is to manage a decent close above the descending trendline that is being challenged (currently 11,100), which could provide resistance for another move lower if not broken.

Descending trendline offers brief respite

Yester saw the Dow Jones regain a significant amount of ground following a bounce from a descending trendline dating back to mid-May. However, while bulls will be breathing a sigh of relief, it is worth noting that many of the recent recoveries have been short-lived and typically reverse lower around the 50-period SMA (four-hour chart). For this reason, I expect losses in today’s trading and will remain bearish unless the price moves above17,630.

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