Bearish breakout may lead to further weakness

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.

12/03/2012, Sandy Jadeja, Chief Technical Analyst, City Index 

Bearish breakout may lead to further weakness

Many traders have commented on how frustrating the recent market moves have been. Consolidations are not the easiest to trade and a simple way to manage such situations is to trade the breakout. However false breaks are notorious when there has been no real follow through. We saw a break to the downside in the indices but this was short lived as the markets managed to recover lost ground and close on its highs. Generally we see range expansion after range contraction. This would suggest that once we have experienced a few quiet days the volatility should pick up again and help indicate the direction ahead. See key levels below:

FTSE 100 breaks below 5820 support

As the FTSE 100 has broken below 5820 support this would indicate a move to the downside is likely. However the index recovered quickly and is back within the trading range of 6000 – 5820. Until the index closes below 5820 followed by a trend continuation pattern this may have to be a waiting game where some traders may choose to sit this one out. On the bullish side the index must clear past 6000 to target upper levels of 6100 – 6250 and this possibility increases if the index hovers above 5820 this week. Momentum has turned bullish again but a weekly pattern indicates that a breakout is overdue.

FTSE 100 Daily
 

Dow Jones dips below 12935

Resistance on the Dow Jones has been between 12935 – 13111. Friday has provided a minor reversal pattern where if the Dow breaks below 12900 then we may see a pullback as long as the index does not trade above 12970 which would negate the bearish view. Last week the Dow fell lower below 12935 but momentum did not turn bearish. As mentioned previously the Dow may revisit the 12880 level. Indeed the Dow flirted with this support but held above to come back at and close below 12935. This week should be interesting if we see the index test the 12880 level again leading to 12450.

DowJones Daily

Gold declined as expected into support

The expectation of Gold declining towards $1660 was satisfied in last week’s trading. The metal fell shy of 3$ with a low at $1663 before closing the week higher but below $1715 as a resistance level. If Gold remains below $1715 then the odds are for the $1660 level to be tested again and with momentum now bearish it seems likely at least for the short term. Wide range bars can see a 50% retracement which indicates an upper resistance at $1750 exists in case the metal does trade above $1715. Clearance of $1800 negates the short term bearish play.

Gold Daily