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Levels to watch: FTSE 100, DAX and Dow

European markets are leading the declines, yet with the Dow fleetingly falling below key support, US markets could follow.

FTSE 100 falls into crucial support level

The FTSE 100 has been in a sharp decline over the past week, with the head and shoulders formation at the 76.4% Fibonacci resistance bringing about a deterioration in the index.

The ability or inability to break below 7220 will provide us with our bias going forward, with a downside break pointing towards a potential drop into the 7092 Fibonacci support level seen on the daily timeframe (76.4%).

DAX decline takes the index close to key breakdown level

The DAX has been declining heavily, bringing the index towards the key 11,866 support level.

The ability to break that level will be crucial in determining whether the wider downtrend remains in play. Given that wider trend, further downside does look likely before long, with a rally through 12,126 required to start bringing a more bullish short-term view. Until then, watch for a potential break below 11,866 as a signal that the wider downtrend remains in place.

Dow breakdown fails to hold, for now

The Dow Jones managed to break below the key 26,332 support level yesterday, with the breakdown proving short-lived after the four-hour simple moving average (SMA) came into play as near-term support.

This does not necessarily mean that the breakdown will not occur, but instead that we are set for a more protracted period of consolidation before we turn lower. Given that fleeting move below 26,332, we now have a lower low in place, pointing towards the current rally being a retracement before we turn lower once again. As such, a bearish outlook remains in play unless we see a break through the 26,955 peak.

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This information has been prepared by IG, a trading name of IG Markets Limited and IG Markets South Africa 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. International accounts are offered by IG Markets Limited in the UK (FCA Number 195355), a juristic representative of IG Markets South Africa Limited (FSP No 41393). South African residents are required to obtain the necessary tax clearance certificates in line with their foreign investment allowance and may not use credit or debit cards to fund their international account.