Levels to watch: FTSE, DAX and Dow

The European and US indices have started to turn lower, following a strong recovery rally. However, are we seeing a reversal or simply a retracement?

Source: Bloomberg

FTSE 100
The FTSE 100 has seen an extraordinary recovery this week, with the index recovering 80-90% of the sell-off seen on Friday. Despite this, we have not taken out the most important resistance level, with a break and closed four-hour candle above 6454 needed to negate the bearish connotations from Friday’s sell-off.

Price action is currently shaping up for a bearish start to the day, with price forming an intraday head and shoulders pattern. The projected target for this pattern takes us back to the 76.4% retracement, around 6283, yet the key thing required to show the sell-off is back on would be an hourly close below 6245.

The DAX appears to be leading the way lower this morning, with the index breaking through the first swing low of 9563 and looking likely to ramp up the selling. This market clearly looks more like it has simply been retracing before we see another leg lower, which seems likely to be back on the cards soon.

The next support level of note is 9495, which if broken would provide more evidence that we are back onto the bearish trend as instigated by Friday’s Brexit vote. A move back above 9700 would be required to show that the rally is back in play.

Dow Jones
The Dow is similarly selling off this morning, following a rally marginally through the 17,768 resistance level. Ultimately, we do not know whether this is a retracement or reversal and given the lack of swing lows or highs, we will need to see how this progresses to gauge. Key support levels to watch are 17,662 and 17,598.

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