Levels to watch: FTSE, DAX and CAC

European indices gain ground amid recent downtrends, but there could be more left in the tank for further downside.

Source: Bloomberg

FTSE could have further downside to come

The FTSE is seeing weakness once more this morning, coming off the back of a rally into the crucial 7381 resistance level. Given the break below that level last week, we are likely to sell off into a deeper retracement of the rally from 7088, with the 61.8% (7284) and 76.4% (7209) levels of particular interest.

As such, further downside from here looks likely from here, with a break through 7450 required to negate the recent downtrend.

DAX weakening from key resistance

The DAX has been turning lower from the crucial 12,490 double top neckline overnight, with that break providing us with a bearish outlook. As the index starts to turn higher from 61.8%, there is a chance we could see another test of the key 12,490 resistance level. A break back above that level would point towards a retracement of last Thursday’s sharp sell-off.

However, the lack of any near-term swing high means it would take a break back above 12,735 to bring us back into a bullish mindset. With that in mind, it makes sense to look for longs at the 61.8%, 70% or 76.4% pullback (12,327, 12,245 or 12,180). Given the bullish divergence we are seeing with the stochastic, which has not broken to a new higher high, there is reason to believe that while we could see further downside come into play, it will provide a buying opportunity. Ultimately, we would need to see a break back below 11,941 to believe that the recent downtrend is going to be a more longstanding issue.

CAC rally unlikely to last

The CAC is similarly regaining ground this morning, following a drop into channel support. While there is a good chance we could see further upside from here, we would need a break through 5281 to believe this recent downturn is over.

As such, selling into this rally is preferred, with the 70% (5230) and 76.4% (5241) of particular interest for shorts. 

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