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Andreas Zanin
Analysis | February 1, 2021

DAX30 & DOW JONES: weekly analysis 01 – 05 FEB

Market movers

Last week, the market strongly confirmed the risk-off approach. Fears of high valuations, new variants of the coronavirus and the growing number of contagions kept investors on their toes. The clash between hedge funds and retail investors after the GameStop events only added to the fuss. However, it must be noted that the market seasonally turns around between February and March. The increase in volumes and volatility only confirms this seasonality.

The important news of the week is the non-farm payrolls in the US, which will be published on Friday, together with the change in the unemployment rate. The non-farm payrolls data, i.e. the jobs created in the previous month is widely expected to provide a snapshot of the health of the US economy.

The new president has promised a huge fiscal aid package totalling $1.9 trillion, but faces Republican opposition to approve the measure.

Meanwhile, we are also waiting for the data on the manufacturing and service sectors in Europe and the US, as well as the Bank of England’s interest rate decision.

Finally, looking at shares on WallStreetBets which this week targeted silver prices; we see large short positions in place.

Analysis of the week and scenarios for DAX and Dow Jones

Friday’s close gave a very reliable bearish signal, after the continuous ups and downs of the prices with high volatility. All the bounces turned out to be real bullish traps and we are really close to a strong bearish movement which might last 3-4 weeks. This scenario could be overturned at any time, so the levels of resistance and support marked by the strong hands will be the keys to operate with precise indications. It is therefore good to proceed with extreme caution.

DE30 – the Dax index opened last week with a strong break to the downside of the support 13,752, leading the price to search in a fast and vertical way 13,551-13,480 area, very important monthly support. After the pullback near the resistance area 13,946-13,988, the price had a weekly maximum decline, confirming the bearish continuation in the middle of the week and closing this week on the support at 13,373, after breaking through it in the Thursday session.

Monday’s opening should lead to new declines and new lows but if the Dax will be able to recover the 13,500 area we don’t exclude strong pullbacks with a target of 13,551-13,650. Possible weekly extensions to 13,752 and then the strong resistance 13,841-13,887 marked this week.

The resistance areas 13,841-13,887 and 13,946-13,988 will continue to offer possibilities for short entries if the price does not maintain these areas on a weekly basis. The same applies to the previously mentioned points, given the ongoing bearish pressure.

New uptrends will be possible only with daily closings above the resistance zone 13,946-13,988, from which we will aim at the last pivot level at 14,072, door for further historical highs. First targets are at 14,231 and 14,465.

In case the price continues to fall below 13,373, we may reach support area at 13,320-13,300. Here we have almost nothing left until the annual supports marked in December: 13,142 and 13,020. The possibility of a strong downward acceleration increases considerably if the price goes under the 13,000 points area. In this case the 12,723-12,635 area is the first relevant support so we cannot exclude the achievement of this area in one or two trading sessions. We also want to note that this area is a key support zone; a net break to the downside of 12,500 points would open the door to further falls.

Key supports at 12,155-12,237 and 11,766, below which we should be ready for a trend change. Once we clear 11,542 the first targets are identifiable in the 11,214-11,095 area; from here possible extension down to 10,766-10,480, last time reached on the 15th of May 2020.

US30 – Despite the excellent results of Microsoft, one of the main components of the Dow, the index was not exempt from the heavy sell-off that has dominated this week in the stock market.

The Dow Jones approached the resistance area around 31,181-31,234 at the beginning of the week and never recovered. In the middle of the week, this rejection led to a strong fall of the index, with pullbacks that led to the creation of bullish traps. The price, after clearing 30,922, broke through the first support in area 30,715-30,648 and then closed below last week’s support at 30,232-30,098 area.

We are at a key point. If the Dow is able to quickly recover 30,260 area, further rises to the resistance level 30,476 are possible. Here we might see a nice rebound, with possible targets on the resistances 30,658-30,715-30,806. The key resistance is located in the 30,922-30,986 area and if the price will break this, we will look again for 31,181-31,234. From here new historical highs, first targets 31,521 and 31,833 with possible extensions to 32,309.

A sustained movement below 30,098 will indicate the presence of sellers. The first target remains 29,96, followed by 29,820. If 29,820 fails as support, 29,751 will come into sellers’ sights. From here possible extension to key support 29,618.

The 29,618 will continue to determine the trend of the index in the coming weeks. Below this level we could see a strong bearish movement.

Remember that only the loss of the weekly support 28,880-29,119 could put the current trend in crisis. Below it we have the intermediate support 28,319-28,051. A close below 27,762-27,625 would undermine the current bullish scenario.

Area 27,019-26,650 is the area not to be missed. This has been successfully tested and has led to strong bullishness. The sellers will come back strongly if the 26,110 level is broken to the downside. The decline will extend to the main low of the 30th of July at 25,777. This is a potential trigger point for a new downward acceleration with three potential main lower targets at 25,399, 25,149 and 24,680. We remind you that the important annual support is at 24,309.

IMPORTANT NOTE: This Monday’s gap is very important. If it will be bearish as we expect, we will face a scenario already seen in February 2020. The gap in question might not be closed and this would confirm a strong sell-off. On the opposite, if the gap is closed this week, then the chances of a bullish recovery will increase considerably.

Have a good trading week!

 

 

Research provided by Giancarlo Prisco

The given data provided contains additional information, forecasts, analysis and market reviews published on the Key to Markets website.

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