Levels to watch: FTSE, DAX and Dow

After a massive recovery on Friday, the question is now whether we will see a more protracted retracement lower or simply short-term consolidation for another move higher.

US traders
Source: Bloomberg

FTSE pulling back as recovery moves towards crucial resistance level

The FTSE 100 resurgence has continued apace today, rising to a two-week high in the early hours. With price having regained a substantial amount of the losses from mid-September, the big question is whether we can see a move back above 6300, which would take us out of this consolidation phase and into a more bullish mindset.

For now, we have seen a bearish engulfing candlestick pattern, accompanied by bearish positioned stochastic and MACD indicators. Given the size of the rise we have seen, it makes sense that some sort of pullback were to occur for now. The downside support level to initially watch is 6208, which if broken would point to a move back to 6174.

As long as price remains above 6208, this chart continues to look bullish yet it is worth noting that until we move back above 6300, there is a strong chance we could see the index turn sharply lower from the upper end of this 5878-6300 range. Thus any bullish sentiment would only hold until 6300, at which point we would have to see how price responds.

DAX retracing from morning upside

The DAX is turning lower following a strong three trading days that have seen the index rise 3.6%. The key here is whether price falls below 9653, which would bring a slightly more bearish outlook. Bear in mind, we continue to create new highs and thus the break lower would just be one part of a bearish reversal story.

Thus for now, this looks more like a short-term retracement lower, for a move back towards 9790. However, a break below 9653 would point to further downside towards 9600.

Dow consolidation or top?

The Dow Jones is consolidating following a similarly strong bull run late on Friday. The continued creation of short-term highs and higher lows appears to me like short-term consolidation and thus the upside bias remains.

However, in a similar manner to the FTSE and DAX, a break below 16,434 would bring about a high likeliness of a more protracted move lower, towards 16,374. Until that happens, upside resistance levels to watch would be centered around 16,583 and 16,616.

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.