Levels to watch: FTSE, DAX and Dow

European indices near crucial support levels, while the Dow Jones begins to look toppy.


FTSE sells off back into trendline support
As mentioned, there was always going to be a threat to yesterday’s upside in the FTSE given the existence of resistance between 6635 and 6650, with the former marking the highest point of price action prior to an overnight sell off. This brings us back to the ascending trendline which has provided substantial support over the past month. The likeliness is that we will sell into it, at 6550 and then the manner in which price responds to 6550 and 6530 – Wednesday’s low – will determine direction going forward.

Thus any move below those levels would bring us into a scenario where we could see a move down towards 6489, whereas should price start to reverse – look for hammers, inverse hammers, bullish engulfing patterns, etcetera – it could be a good point for the bulls to come back to the fore and start turning us towards 6650 and even 6720.

DAX in precarious position
Yesterday saw the DAX selloff from the 50-hour simple moving average and April 2015 descending trendline. With a massive area of support (200-day SMA & October 2014 ascending trendline) around 10,994, a daily close below this would put us in a very bearish footing.

However, signs are that we could see a recovery today following a second move back down to this support to accompany the new higher low created this morning. With that in mind, I personally prefer a bullish view and expect another leg higher today, to 11,166 and onwards. This is due to the sheer size of support below price right now, with my bullish view turning more bearish should price close below 10,994 and 10,890.

Dow returning to SMA resistance
The Dow Jones sold off from the 50-period SMA (4-hour) yesterday, yet this appears to have only been brief, with bulls pushing it back towards the indicator this morning. Given that recent tops have occurred around this SMA, I partly expect the sellers to return in the area between this indicator and the descending trendline that marks the top of the recent falling wedge (currently 17,510).

Thus I am bearish for the Dow Jones should it move back into the 17,455-17,510 zone. However, the overall bullish primary trend would be seen to continue should price break above 17,630. I would become more neutral should price move back above the descending trendline.

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