Levels to watch: FTSE, DAX and Dow

With the FTSE pulling back fairly heavily in recent days, there is a potential for a more protracted decline in the near future. However, this view is in its infancy and does not conform across all markets, and thus we are watching for further signals.

Two women walking by a data board
Source: Bloomberg

FTSE breaking lower bringing possibility of big selloff

The FTSE was breaking below some key levels on Friday, bringing about an increased chance that we are actually seeing something quite notable here. A move out of the wedge formation preceded a break below key support at 6356 and has since continued to fall.

The gap lower over the weekend is likely attributed to weak Chinese data, yet ultimately the trend appears to be clearly defined as favouring further downside.

There are two major support levels to take out before we see the selloff really take shape, in the form of 6300 and 6252. Thus watch out for those levels, but for now we are creating intraday lower highs and lows, which I expect to continue. This would mean that the current bounce is likely to be short-lived, and I would expect it to turn lower below 6376 resistance. Also be aware of 6337 resistance, which is the gap open.

DAX bounces from crucial support level

The DAX has held up better than the FTSE recently, and despite the selloff we have seen late into Friday and early this morning, the price has failed to break below the key 10,740 support level and is now using it as a base to move higher.

We have seen some weakness of the upside, with highs failing to break back towards the 10,925 level, yet I would need to see a move back below 10,740 to gain confidence of a stronger selloff. For now, this looks likely to return to the 10,870 region to continue the recent range.

Dow dips below support to create mini double-top

The Dow Jones saw a move below the key 17,686 support level on Friday, creating a small double-top formation. This pattern gives a projected target of 17,524 which is crucially below the 17,549 support level that this index has to break through to gain traction to further selling.

With the FTSE leading the way in terms of a potential selloff in indices, I would like to see that move below 17,549 before I say with any confidence that we are going to see further selling. However, now that we have created a new low, a lower high would set us up nicely for another move lower.

With the price clearly consolidating, we could see a short-term bounce, but even if that happens, I would need to see a move back above 17,850 to continue the uptrend. We are seeing the infancy of a downtrend, but further evidence is needed. Near-term support is at 17,549 and resistance at 17,850.

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