Levels to watch: FTSE, DAX and Dow

The indices fall back to their respective swing lows. Is this simply a deep pullback or indicative of something more bearish?

Data on screen
Source: Bloomberg

FTSE rallying after yesterday’s weakness

The FTSE 100 sold off sharply yesterday, pushing below the crucial 6893 mark briefly. However, despite this occurring, a bearish view is not in place given the moves we have seen in correlated markets such as the DAX and Dow Jones. Given the depth of this pullback there is certainly a chance we will see another move lower soon and thus a more neutral view is in place until we see how this plays out.

A bearish outlook would come into play should the FTSE break and follow through on a move below 6893. Until that occurs, another leg higher is certainly a possibility.

DAX back from the brink

Unlike the FTSE, yesterday saw the DAX hold on to the key support level of 10,632 and has been rallying ever since. This is the key support level which must hold for the uptrend to remain in place.

Given the price action we are seeing this morning, there is a potential head and shoulders pattern in the offing, with an hourly close below 10,632 pointing towards a sharp deterioration in the index. The head and shoulders target would be 10,456.

Dow rallies from key support level

The Dow also fell to its crucial swing low yesterday, with price bouncing from within points of the 18,533 level. Ultimately this level will dictate the state of play for this index, with an hourly close below 18,533 providing a more bearish view.

Until that happens there is also a strong chance of a recovery. As such, a more neutral view is in place.

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