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Levels to watch: FTSE, DAX and Dow

Possible divergence is back on the cards, with European markets looking increasingly bullish, while the Dow continues to flounder.

London City
Source: Bloomberg

FTSE rallying back towards key resistance level

The FTSE 100 attempted to break below the key 7338 support level, with the index failing to post an hourly close below that level, only to rally back into 7359 resistance. The key here is whether we will get an hourly close above the 7359-7363 resistance zone. Should that occur, it would look like we are about to break higher.

Last week’s inability to form a bearish head and shoulders pattern (below 7253), suggests a distinct possibility that we will resolve from this range to the upside. However, the next move will be dictated by seeing an hourly close above 7363 or below 7338.

DAX pulls back into deep Fibonacci retracement

The DAX has sold off sharply into the 76.4% retracement this morning, with the index hitting the near-term support level of 12,145. The shaded triangle highlights the zone of support derived from two alternate trendlines.

Given the break through 12,244, there is a high likelihood that we will see this index push higher from here, with a move back towards 12,284. A break above there would look to the previous all-time highs. Conversely, a move below 12,115 would negate this view.

Dow rebound could be short-lived

The Dow Jones is showing signs of a rebound, with the oversold stochastic joined by a repeated inability to break below 20,620. However, we are seeing a clear range (apart from ADP/FOMC move on Wednesday) respected, with 20,756 the key resistance level to watch.

Due to the trendline break and subsequent creation of lower lows, there is reason to believe any short-term bounce could prove fleeting, before we sell off once more. That said, the medium term direction of the Dow will be dictated by the eventual breakout from this 20,515-20,756 range.

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