Levels to watch: FTSE, DAX and Dow

European indices are selling off, as the FTSE breaks to a new low with bearish implications.

A man on his phone
Source: Bloomberg

FTSE breaks below key support level to bring bearish bias

The FTSE has broken below the lower end of the falling wedge we were watching yesterday, bringing a break of the most crucial level; 6489. This now turns the symmetrical triangle into a clear example of lower highs and lower lows. Thus the next major support level to be watching for is at 6429, which could easily be reached in the coming days.

I personally prefer to trade the pullback and see a retest of 6489 as new resistance, yet this opportunity is never guaranteed. In any case, this creation of a new low is a bearish indicator and points towards further losses both in the short term and the medium term.

DAX trades down towards channel bottom

The DAX has moved lower once more, with the price returning to the other end of the channel we were watching yesterday. The previous candle shows a clear willingness to move beyond that trendline, yet the current candle is clearly respecting it.

I would want to see a closed candle below the channel to ramp up the selling action. However, given the length of the lower shadow on the previous candle, there are signs to suggest that we could see a bounce should the price not close below 10,768. Should we see a bounce, the next resistance level would be around 10,893, whereas an hourly close below 10,768 would look towards 10,660 as the next major support.

Dow retracement likely to be temporary

The Dow Jones has begun to round off, with a failure to create a new high accompanied by short-term new lows. The important thing for us to have a more bearish view for the medium term would be a move below 17,339, which seems unlikely for the time being. Thus the current move lower is more likely to be a retracement of the 17,339-17,575 move.

Given the hammer posted in the last candle, I expect to see a strong hour or two, yet there is clearly the potential for another move lower into this retracement. However, the 61.8% Fibonacci level at 17,429 should provide support should this occur, and any move lower towards that area would be seen by many as a better price to enter the markets into a long position.

Be aware that with the FOMC minutes later today, we could see significant fundamentally driven volatility. I am bullish for the medium term, yet could see the price moving below today’s low of 17,435 before that. My bullish view holds unless the price moves below 17,339.

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.