Levels to watch: FTSE 100, DAX and Dow

European markets appear to have been underperforming so far this week, with earnings helping the US case. However, things look likely to recover soon enough, even if we have a near-term retracement.

FTSE 100 breaking lower after shallow retracement

The FTSE 100 has dropped back into the overnight lows, following on from a relatively shallow retracement throughout the morning. Given the drop below 7240, a more bearish outlook is in play for the time being. Should we see an hourly close below 7240, this would be another sell signal for the index.

That being said, this looks like a retracement of the wider 6955-7296 rally, and as such, it makes sense to look for this sell-off to bottom out around the Fibonacci retracements. It is likely that we will retrace 50% at the minimum, and thus, this sell-off should drop to 7125 at least before we turn higher once more.

DAX regaining ground after recent pullback

The DAX fell towards the 61.8% retracement yesterday, with the price moving marginally below the 12,395 level. However, this looks like a retracement of the wider 12,255-12,548 rally, pointing towards a resumption of the recent uptrend soon enough.

We are seeing the price regain ground this morning, pointing towards a more positive day ahead. So, a bullish outlook remains in play unless we break below 12,255.

Dow rallies through horizontal resistance into trendline

The Dow Jones managed to break above 24,626 yesterday, bringing a bullish signal within a wider bearish trend. This heightens the chance that we are seeing a bottom in play here, after months of downside. For that to be confirmed, we would want to see a break above 24,984.

However, for the near term it is worthwhile noting that, despite this recent break higher, there is trendline resistance up ahead to watch out for. This forms the top of a rising wedge formation, pointing towards a potential shift lower. As such, there is a good chance we will move into retracement mode today, where a break through this trendline would be required to point towards further upside.

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