Levels to watch: FTSE, DAX and Dow

A rally in European and US indices yesterday has brought a more bullish picture to proceedings. However, as they ease lower this morning, are we seeing a retracement or something more significant?

Data
Source: Bloomberg

FTSE consolidates following rally
Yesterday saw the FTSE 100 extend higher following a bounce from the support zone of the range which has dominated the state of play for a month. Typically this range has seen upward price-action rally into the 6200-6220 zone, only to fall away once more.

Thus further upside is expected unless we see a closed hourly candle below 6164. Should that occur, it does not necessarily signal an end to this rally, but more a deeper retracement than the 38.2% pullback seen so far.

As such, an hourly close below 6164 would look towards 6158, 6153 and 6147 as important support levels. To the upside, further gains are expected, yet could be limited with trendline resistance alongside the key 6200-6220 zone up ahead.

DAX consolidates after double-bottom
The index has finally seen some respite to the selling which has personified the index so far this month, with a break through 9608 resistance. This completed a double-bottom formation, bringing with it a projected target of 9718.

However, for now price has become stuck below the 1 April low of 9674, which will need to be broken to revive the bullish momentum of yesterday. As such, a closed hourly candle above 9674 would look towards 9718. Until then, any continued drift lower would look towards 9607 (double bottom neckline and 38.2% retracement) as the key support level to hold for another move higher. Should it not hold, a deeper retracement of 9566 (61.8%) or 9541 (76.4%) would come into question.

Dow rally follows failed break lower
Yesterday’s rally came following a fakeout below 17,572, highlighting the importance of a closed hourly candle to signify a break. We have since created a new higher-high on the hourly chart and with the index currently consolidating, this looking likely to be a brief period of respite before another move higher.

An inside trendline and 38.2% confluence of support could provide a sufficient base for another move higher, yet a break through that area would look towards deeper pullbacks around 17,659 and 17,643. The deeper the pullback, the better long entry risk profile and thus a move back towards the 76.4% retracement may not be such a bad thing for bullish positions.

Whether that happens or not remains to be seen, but we are within a clearly defined uptrend and last night’s rally has provided fresh impetus for further gains, with 17,726 and 17,769 the next major resistance levels. 

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