Weakness continues to bring markets lower towards support
City Index August 24, 2012 9:52 PM
<p>As momentum has continued to the downside, the markets have almost reached a support level. Traders are anticipating a major decline but so far we […]</p>
As momentum has continued to the downside, the markets have almost reached a support level. Traders are anticipating a major decline but so far we have seen what appears to be a correction. To really see a strong decline the indices will need to continue to the downside into next week. Ideally the markets should break below this week’s low and then continue lower. If this scenario takes place then this suggests a reversal may firmly be in place and go beyond a normal correction. Otherwise the alternative scenario is another push higher but the pattern prefers a push lower. See key levels below:
FTSE 100 may test 5700 level
If the UK FTSE 100 continues lower next week the opportunity for the index to reach 5700 is likely. Previously we can see that the FTSE 100 had attempted to break past 5700 four times as this was clearly a resistance level. Eventually a thrust higher lifted the index to the next target at 5830 and we may now see the index drop lower towards the previous resistance which could now become support. If we see a series of red bars occur then that would indicate a trend reversal may be at hand. But until that happens traders can assume that the 5700 level may hold at least for the short term.
Dow Jones tests previous resistance
We can observe that the Dow Jones has now tested the previous resistance level of 13060. Now the index will need to decide if this will hold or fall below to continue lower. Here too the momentum is bullish until proven otherwise. So the current move may also count as a correction but if we see a move higher and it is unable to break past the recent highs followed by a move lower, then that could form an ABC pattern suggesting that a further decline may be in the making. Again patience will be required but for now 13060 may provide short term support for the Dow Jones.
Crude Oil showing signs of uncertainty
With a clearance of $96.30 the price of crude oil has move slightly higher but not with enough strength. Currently on the weekly chart the commodity appears to be forming an indecision pattern. If next week breaks below this week’s low then we could see a move back down to the $96.00 level or else a move above this week’s high to lead to a trend continuation to the expected $100.00 target. So far the price of crude oil is short by a few points from the $100.00 level and if cleared, to set sights on the $106.00 level. As long as $92.60 holds then upside possibilities could increase.