Levels to watch: FTSE, DAX and Dow

The indices continue to consolidate following the sharp sell-off on Friday, with triangle formations coming into play. Are we set for another break lower or will we break higher from this tightening of price action?

Traders in a German stock exchange
Source: Bloomberg

FTSE rallies towards wedge top

The FTSE has created a new lower low yesterday, providing us with some clues that this sell-off may not be over. Given the wider topping pattern, it is no wonder we saw another leg lower. However, with price forming a falling wedge pattern, there is a good chance we will see the ultimate breakout occur to the upside.

Price is currently enjoying a bounce from trendline support and thus we could see further gains in the short-term. That said, the directional bias will come upon seeing an hourly close either below the lower boundary of this pattern, or else above 6721.

DAX rallies into trendline resistance

The DAX has also enjoyed a bounce this morning, rising into trendline and simple moving average (50) resistance. We await the next breakout via an hourly close either below 10,302 or above 10,461. Given the trend coming into this descending triangle pattern, a breakout towards the downside is preferred.

As such, it makes sense to be short of this market around trendline resistance as a means to capture both pattern continuation and hopefully the breakdown. This bearish view remains unless we see an hourly close above 10,461.

Dow rally likely to turn lower once more

The Dow Jones has been trending lower since Monday’s rally, with price continuing to create lower highs and lows. The current bounce could extend up to trendline resistance, or else maintain the shorter-term trend by remaining below 18,039.

In either case, as long as we do not see an hourly close above 18,163, a bearish view is in place. The ability to break below 17,906 is key here, as that would likely spark another round of significant selling in the index.

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