Levels to watch: FTSE, DAX and Dow

Yesterday’s downward momentum has continued into the new day, with European indices still in the red, ahead of potentially major news from the European Central Bank.

City of London
Source: Bloomberg

What began as a downward move yesterday turned into a full-blown rout for equity indices, thanks to a combination of growth fears, geopolitical worries and concerns that the ECB is not planning anything spectacular for its next meeting.

FTSE oversold

It seems difficult to believe that the FTSE is now almost back to the 6500 level, having breezily moved through the August lows. A near 5% move from 6850 has carried the index all the way back to the oversold zone and potentially major support at 6500. 

Any close below here then takes us in the direction of 6450 and then 6400; the lows of December 2013 and January/February 2014. On the upside the index needs to target 6580, and while the atmosphere looks firmly bearish the momentum indicators such as MACD are now at levels that have often seen the start of extended rallies.

DAX bounce some way off

The absence of an oversold condition on the DAX should worry those looking for a bounce, as it suggests we may have some way to go yet.

The index has dropped below support at 9360 but if it can close above here there may be hope of some short-term buying momentum. Below this we look towards 9200 for possible support and then on to 9000 if this fails to hold.

Any rally to the upside must close above the 50-DMA in coming days and then recover the long-term uptrend at 9580, which would cancel out the bearish scenario.

Dow falls below long-term trendline

The Dow Jones now seems to be set on a repeat of the August test of the 200-DMA, which currently lies around 16,590.

If this area is broken then the August lows of around 16,380 represent the next area of support, and 16,000 thereafter. A sustained rally must see a close above the trendline at 16,890 and then a move back above 17,000.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 79% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money. Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.