Bounce from support levels lift markets higher

<p>The recent declines in stock indices have dampened the mood for the bulls. But after an extension to the downside it now seems that both […]</p>

The recent declines in stock indices have dampened the mood for the bulls. But after an extension to the downside it now seems that both the FTSE 100 and Dow Jones have reached support levels which could help the markets higher into next week. However this is not to be seen as a Bullish reversal but rather a corrective move higher. The trend has been bearish and as some consider the markets in oversold territory a short term bounce could now be in the making. Also the move could be sluggish which is likely to frustrate traders whilst the markets try to figure out how far it is to travel before a trend continuation takes place. See key levels below:  

FTSE 100 respects support level

Now that the FTSE 100 has fallen down to the 5288 level the opportunity to see a short term move higher is probable. This is on the basis that the index sustains this support level and breaks above 5407 to confirm the move. The upside target is likely to be 5580 which where the index found support in April. The recent move to the downside appears to be a Wave 3 which would mean that the move to the upside will be a Wave 4 followed by another leg to the downside to complete Wave 5. From the chart patterns the worrying aspect is still that the Monthly chart shows we could be in for further losses ahead.

FTSE 100 Daily

Dow Jones to test upper channel

The Dow Jones has not quite made the support target of 12270 which could leave the door open to see a test of this level to complete the move. However if next week the Dow Jones clears 12575 then the low of 12311 should be respected. The 12700 level which was previous support is now to provide a wall of resistance and is going to require a serious level of buying and positive momentum to break above this level. The trend is clearly bearish and until this reverses sharp moves to the downside should not be ruled out.

Dow Jones Daily

 

Gold holds support of $1,585

We have seen Gold hold $1,585 and the lower support of $1,530 is where the commodity found itself before moving higher. The current level of Gold is stuck between the upper barrier of $1,600 and now $1,530 which will require a breakout to confirm the next directional move. Here too the trend has remained bearish and the Weekly charts also has not shown any signs of a Bullish reversal just yet. If the stock indices turn sharply lower then we may see a flight to safety and the possible comeback of higher Gold prices. For now though a breakout is anticipated for short term traders.

Gold Daily

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.