Levels to watch: FTSE, DAX and Dow

Both the FTSE and Dow have reached crucial support levels this morning, which will define the coming day’s trade. With weakness across the board, a break lower would signal something bigger may be in the offing.

Wall Street
Source: Bloomberg

FTSE challenging crucial support level

The FTSE has sold off sharply into the 7253-7262 support zone this morning. The ability to maintain the price action above this level is key to avoiding significant losses for the index.

However, should we see a strong hourly close below 7253, we would be looking at the completion of a bearish head and shoulders formation. As such, the reaction to this support level will dictate the state of play for the remainder of the week.

DAX continues to retrace within uptrend

The DAX is moving lower again today, with the index clearly in a retracement mode following a strong move higher in late March. The expectation here is that we will break to new highs once more soon, but we do not know exactly where this retracement will come into before it turns higher.

So far, we are seeing the 50% respected, yet there is a good chance we could see at least one more leg lower before we start to see the index turn higher. The price action on the stochastic has formed a falling wedge, which could provide the bullish signal, with a break higher from that pattern. As such, a bullish resolution to this current move lower is expected, as long as we do not break below 11,850. Watch the Fibonacci support levels alongside the stochastic wedge for potential reversal signals.

Dow lower after topsy-turvy 24 hours

The Dow Jones saw a sharp move higher turn into significant losses yesterday, as the ADP payrolls and Federal Open market Committee (FOMC) had very different effects upon the market. Crucially, we saw an inverse head and shoulders pattern completed, yet with the price breaking back below that 20,756 neckline, the validity of that formation comes into question.

For now we are seeing the price hold up at trendline support, where a break lower through 20,515 would provide a very bearish signal. However, until then we have seen a new high created yesterday and there is a good chance we could utilize this trendline as support to create a third higher low. As such, it could be worth looking at short intraday timeframes for signs of a bullish reversal here.

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