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Levels to watch: FTSE 100, DAX and Dow

Stock markets are on a downward tilt, following yesterday’s sell-off. Despite short-term gains, there is a good chance we could see further downside.

Source: Bloomberg

FTSE 100 regaining ground after sell-off

The FTSE 100 managed to break out from its symmetrical triangle formation, with a break below the 7500 swing low bringing a sharp deterioration for the index. We are now seeing the FTSE 100 regain ground, with a break up through 7471 key to seeing further upside. Should we see an hourly close above that level it would point towards a move into 7484 as the initial resistance level.

However, even if that occurs, there is a good chance we could see further downside, given the size of the September/October rally. Conversely, watch out for a break through the 50 mark on the stochastic indicator as a bullish wedge breakout sign.

DAX triangle breakdown points towards further losses

The DAX also broke lower from a symmetrical triangle formation, with the index falling below the 12,954 swing low. This has a good chance of marking the beginning of a wider sell-off for the index, so we could see further short-term upside, which could be sold into.

That being said, for greater confidence that we are going to see a wider downturn, it makes sense to watch for a break below 12,910 support. On the upside, we would need a break through 13,048 to provide a more bullish outlook.

Dow breaks below key support level

The Dow Jones broke below the key 23,264 support level yesterday, bringing with it an end to the trend of higher highs and higher lows. There is a good chance we could see further downside, and as such the Fibonacci retracements become relevant once more.

With a handful of major firms reporting today, the fate of those figures are likely to be the main driver of US markets later. So, a short position is essentially a bet that we will see further earnings disappointment. The trend has been largely positive so far this earnings season. Nonetheless, should we see a deep enough retracement prior to the numbers, it could be an option to look for shorts, given the positive risk-to-reward implications. A break back below 23,251 would provide greater confidence that the recent uptrend is over.

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