Markets fall from resistance levels but is this a false move

Sandy Jadeja, Chief Technical Analyst at City Index, analyses the market to identify key technical levels for major commodities and indices markets including the FTSE 100 and Dow Jones this week.

04/05/2012, Sandy Jadeja, Chief Technical Analyst, City Index 

Markets fall from resistance levels but is this a false move?

On several occasions the bears have been spooked as each time the markets have hit resistance levels but failed to follow through. Will this time be any different? So far the FTSE 100 has shown clear signs of weakness and fallen in line as expected but the US Dow Jones has been lagging and holding up creating mixed signals. What we really need to see is Weekly Negative closes but also Weekly breakouts below recent lows coupled with lower highs. Until this scenario occurs the false breakouts traders are experiencing are likely to continue. Gold should also be monitored. If support fails to hold then further weakness is likely. See key levels below:

FTSE 100 to retest recent lows

It is clear that the FTSE 100 had recently turned bearish and we have seen the index fallen lower and also below 5690. We have also closed the week below this support level which indicates that we are likely to retest the 5580 level again. This retest is important in terms of how the index reacts. If we see a rejection of this level and move higher that would suggest we are probably in a range bound phase. Otherwise a close below 5580 could take the FTSE 100 lower and result in a sharp thrust towards 5250 as a key objective. It is important to note that the trend remains bearish until we see a close above 5820 for now.

FTSE 100 Daily

Dow Jones falls below 13111

The Dow Jones has declined in line with previous forecasts. Whilst the index may be forming an intermediate reversal at the 13111 resistance level the trend has not turned bearish just yet. What is likely to occur going into next week is that the index may see a short term snapback but this may last only a few hours. If the Dow Jones can climb above 13220 then the low seen today may be within a trading channel set between 13270 – 12700 of which a breakout will determine the longer term trend. Volatility is likely to continue into early next week as traders try to ascertain how much lower the index can fall.

DowJones Daily

Gold holds above support level

Gold will need to prove that it can hold onto the $1630 level and move higher whilst weakness in the stock markets have brought indices lower. If both traders and investors treat today’s move as risk on then this could well lift Gold higher back towards $1670 or higher. But given that we have seen Gold test $1630 several times the support level may even be breached and pull the commodity lower to reach for the next support level of $1585 over the next two weeks. The week ahead should provide further clues as to where we see Gold trade for the month of May.

Gold Daily