Levels to watch: FTSE, DAX and Dow

Indices break down as US data sends bulls packing.

German stock exchange
Source: Bloomberg

FTSE break points to further losses
Yesterday’s poor US GDP and a surprisingly dovish Federal Reserve was enough to push the FTSE back below the crucial 6975 support level. The most crucial part of yesterday’s move lower was the retracement which saw price action return to 6975 on five occasions to test it as a new resistance level. This is the setup which provides the better trading opportunity following a breakout in my opinion as it minimizes the stop-loss size and thus raises the risk to reward profile.

Just like clockwork, this morning has brought the volatility back to the markets and we have now moved to a four-week low.

The break below 6975 has now completed a double-top formation, which brings a target of 6825, and coincides with the ascending trendline from mid-December lows. However, support at 6900 should also be watched as this represents the 50% retracement of the April lows to highs.

DAX head and shoulders completion points to sub 11,000
Yesterday’s move lower in the DAX saw the support level of 11,618 smashed and with it, we saw a bearish tone take hold. The inability to retrace back towards 11,618 meant we weren’t provided an opportunity to buy in at the breakout point, yet with prices pulling back to the 23.6% retracement and consolidation, the signs were there for a second move lower this morning.

The daily close below 11,618 meant that we have now seen a completed head and shoulders formation, with the projected target coming to 10,842. Given the previous resistance at 11,000, accompanied by the fact that it is a whole number, I will be expecting to see price start to catch a bid back around 11,000-10,842. However for now I expect continued selling and will be looking out for continuation patterns (flags/pennants) to signal the next move lower.

Dow selling conforms with symmetrical triangle
Yesterday’s selloff was not so surprising for the Dow Jones, with prices having reached the upper threshold of a two month symmetrical triangle formation. There is a support region around 17,900-17,910 which should be watched out for, given the three bounces from that region over the past seven trading days. However, with global indices starting to look like we could see some further losses, it seems like a good time for the Dow to return back towards the lower threshold of this triangle (currently 17,820).

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