DAX 40 & DOW JONES: weekly analysis 9th – 13th January

Market movers

The stock market ended positively after about three weeks of sideways movement due to the Christmas holidays.

After the release of Friday’s NFPs, the markets recovered.

The data confirmed the excellent momentum in the US labour market, with a higher-than-expected number of jobs created and a falling unemployment rate, mainly due to seasonality in December.

On the previous occasion, last month, similar positive data had created bearish turbulence due to the fear that the Fed would interpret this information to tighten restrictive policy further.

This time, the positive data, accompanied by an unemployment rate that had returned to 3.5%, again an all-time low for decades, created an upward reaction, almost a symptom of a return to normality. This reaction is mainly due to traders positioning themselves with call options to hedge against sudden upside risks.

This week we will have two key events: a speech by Powell on Tuesday at 3 pm and the inflation figure on Thursday at 2.30 pm. These events may or may not confirm the current uptrend.

On Friday, the GDP figure and UK manufacturing production may significantly affect the pound.

Weekly analysis and market scenarios for DAX and Dow Jones

The barometer of the first week of the year and the 6 January setup generated a very positive signal for the stock markets. If the first annual setup confirms this at the end of January, the market could attempt an extension until March.

Our annual forecast sees a low in January and a high between November and December, in line with the data received this week. The expected yield is between 15 and 20%. October 2022 could be the low of this decade.

Macroeconomic data confirm what would appear to be the central banks’ orientation. Macroeconomic data will be monitored, but the rate hike would seem to be over as inflation tends to recede. Growth is slowing down, but moderately, and this factor does not seem to threaten corporate profits, which should continue to be on a moderate upward trend with a positive outlook. Therefore, despite the vigorous rate hike over the past year, as ventilated by Powell at the last Fed meeting, a soft economic landing is expected during 2023.

The next 3-4 weeks will be crucial, so we will proceed to confirm the yearly forecast from time to time.

The S&P500 index has been stuck in a range of just over 100 points for the past three weeks (3800-3900), finally giving a directional signal at last Friday’s close when it broke out of that range and closed in the 3913 area.

If prices stay above 3927 this week, the index can start a new bullish path with targets 3947 and 3989-4009. This area will be the key to this path, representing extreme resistance. A new strong sell-off could begin if this area constitutes a relative maximum.

New support in the 3893-3887 area. Below it, prices may stretch to intermediate supports in the 3863 and 3834-3844 area. Weekly support at 3808-3798 area.

Supports around the areas 3669, 3680-3689-3701, and 3711-3726-3733 are confirmed. The latter marked last week’s accumulation area.

3762 and 3711 are the monthly levels that support the current uptrend, so beware of any breakout of these levels: we could see new and heavy declines.

The psychological support 3600 remains crucial. Support around 3644-3651 points has halted the fall and is now the monthly support after this strong uptrend. Prices should not return around that area again to avoid new heavy bearish pressure. Notable levels below it are 3607, 3557-3547, 3538-3524 and 3514-3507. The 3485 support is now the annual, key and historical level for the S&P500 index. We will test whether this last level could stop, at least in the medium term, the bearish direction of the markets and offer a reversal until December. Should we go beyond it, 3200-3300 will be the target, sought after by funds, investors and traders halfway around the world.

Above the 4009 mark, we can find key resistances around the 4045 and 4078 marks. Other resistances are 4096, 4119, 4128 and 4150.

The target remains a final resistance in the 4157 area, from where prices could stretch to the critical area around the 4182-4202 marks, the monthly bullish reversal zone.

Unless prices see a weekly close above 4202, any attempt at a bullish reversal will be short-lived. The 22 August gap in the 4221-230 area and closing of the index above 4258 will probably be decisive.

We can find confirmed resistances in the 4258 and 4393-308 areas. Other resistances are around 4313-4339, 4396, 4415-4451, and 4480.

The 4506 and 4554 are the resistance levels to be broken to see the downtrend that began in April reversed. The 4580-4590 is the area to overcome to break down the monthly resistance in the 4613 area.

A weekly close above 4613 may guarantee a reversal of the annual trend if confirmed on a monthly basis; the following targets remain 4717 and 4780.

How to move? The low should form on Monday (starting the first trading hours of the week with an initial downward technical adjustment), and the high in the first trading hours on Friday.

The month should have already formed the minimum, while the maximum should be in the last few days around the 31st.

However, if the index were to close below 3762 on a weekly basis, a new decline could begin. In the meantime, a rise of more than two per cent is expected this week.

DE40 – The German index was stuck in the 14090-13817 range from before Christmas until last week when it started a steep uptrend and closed on Friday above our crucial resistance in the 14600 area.

New critical zone in the 13814-781 area. The loss of the 14069-13974 volumetric zone opens the way to monthly support in the 13621 area.

Monthly support in the 13621 area. The Dax left a huge volumetric gap after the FED’s inflation figure, which was easily penetrated at the loss of 13975.

Solid supports in the 13692-608, 13550-516, and 13457-410 areas. Confirmed supports around 13314-333, 13331-410, 13438-467.

Intermediate volumetric supports are confirmed in the 12865, 12833-12909, 12978-13038, 13113-178, 13222-280, and 13307-357 areas.

Support in the 12808-766 area is confirmed. From 12628 to 12766, there are a series of intermediate supports, helpful for looking for long pullback entries. 12566 becomes monthly support.

Other key supports are 12407-517 for volume concentration and 12353-275, the first bullish turn zone. Confirmed supports in the 12223 and 12136 areas.

Confirmed supports are in the 11875-11950-12024 area, which halted the price fall after the US CPI data on Oct 13th. Losing it would mean new bearish pressures and a touch of the weekly support in the 11766 area; below it, extensions to 11650 and 11542. The 11095 mark could be a target in case of a massive sell-off. These levels can be seen as annual reversal points.

New intermediate supports around 14138-184, 14342 and 14414-538. Any bearish attempt will be short-lived if we do not lose this area. Weekly support around the 14157 mark.

The 14600 created conditions for heavy reversals. Its recovery for a new medium-term bullish trend should be monitored.

The monthly resistance in the 14810-899 area is confirmed.

Reaching levels 15261 and 15380 later could push prices up to 15570 and then towards the weekly resistance of 15665.

An intermediate resistance is around 15810, with a new bullish strength only above 15944.

Finally, a break of the resistance area around 16079-16136 would offer the possibility of a stretch toward the critical resistance 16230, from which to target the 16300-16500 zone.

If by next Friday prices remain above 14538, we will see a possibility of a bullish continuation on a monthly basis; below 13975, on the other hand, the trend may push forcefully downwards.

US30 – The Dow index on Friday started its first attempt to break out of the 33679-32546 range, where it has been stuck since mid-December.

Confirmed supports placed in two well-bought areas: 31197-497 and 31536-764. The 32000 area is the psychological support. Other support areas are 31885-32064, 32118-211 and 32254-316, which are excellent for buying opportunities.

Support areas 32415-360 and 32546-624 are confirmed, and we can find new support in the 32696-810 area.

The zone of 31036-31125 offered a new upward price turn. Confirmed support around 30953-815, 30715-614, 30559-381, 30253-136 and 29696-29906.

The 29485 mark remains a critical level. Below it, in addition to 29619-529 and 29338-29264, we have the following confirmed support areas: 29159-28876 and 28800-28685. These are all excellent supports to look for long opportunities. Should they all be pierced to the downside, prices could move toward 28319, 28051, 27765, and 27019 in extension.

The 34000 was lost hard and offered a new bearish acceleration.

New support in the 32872-983, 33026-102, and 33161-322 areas. The latter is the area not to be broken to continue a strong uptrend. Other support in the 33461-547 area and confirmed supports around the 33679-836 marks. Weekly support in the 33122 area and monthly in the 32870 area.

Weekly resistance in the 34092 area. Further resistances in the area 34190-318, 34359-498, 34607-706, 34801-34950.

Monthly positioning above 35599-35963 could offer a new bullish direction; 35157-34850 and 35614 areas are significant because they may lead to either direction extensions. Observing this area is extremely important.

A move through 36529 and holding that level would offer the possibility of seeing area 37000 if prices forcefully break the last resistance placed at area 36786. Above 36236, we maintain the option of further bullish volumetric thrusts.

IMPORTANT NOTE: January is statistically indicative of the rest of the year. It should therefore be followed carefully, as we will have particularly high volatility.

Also this week, it is wise to note Monday’s openings and Friday’s closings for confirmation or denial of the current trend. Avoid overtrading and watch for volatility imparted by HFTs. Mark any gaps that may also appear during the week, with particular attention to those on Monday.

Happy trading and happy new year!