Market movers
The US stock giants quarterly reports did not disappoint. This is largely due to COVID and the social changes it brought into our lives.
However, some to be expected profit-taking could lead to further market declines in the coming weeks.
Another interesting theme is the semiconductor shortage which is leading to rapid interest in the sector. There is vast demand given the need to implement production for the digitisation.
Last Wednesday’s Fed meeting was in line with market expectations and it resulted in a “non-event”. Rates remained unchanged as expected and no changes were made to the USD 120 billion monthly QE plan.
There were only a few changes in the statement reflecting improvements on the macro front and on the Covid19 front. However, the Fed remains cautious and leaves the topic of tapering to the following quarters.
Next week will be especially interesting from a macroeconomic perspective with Friday’s non-farm payrolls data. Very positive figures on the American labour market could increase the chances that some members of the FED might consider discussing tapering, i.e. reducing monetary stimuli.
As for the quarterly reports, we will wait for Pfizer (Tuesday), Paypal, Uber, GM (Wednesday).
Analysis of the week and scenarios for DAX and Dow Jones
Although the Nasdaq 100 and the S&P500 reached new all-time highs this week, the Dax and the Dow Jones maintained a noticeable downward pressure. We are witnessing a side-line phase as the levels from which new trends can start have not been touched or broken. Next week may provide precise indications on the trend to be observed in the following month.
Volatility remains quite high with strong daily volumetric excursions that are not good for the bullish trend and strong HFT presence. We will follow carefully every single session.
DE30 – Last week’s opening was characterised by price hovering around 15,269 and then subsequently reaching around 15,356. This area was the key for new bullish fuel but the price turned heavily right on the resistance last Wednesday. After that, a bearish movement started and ended on Friday with a new test of the weekly support at 15,119 points. Key support remains 15,000, below this level the price might start falling sharply.
The picture is very clear: intermediate resistance at 15,269 and only above 15,356 we will find bullish strength. The bullish trend will manage to regain momentum only above 15,464. Holding this level will be critical since we had registered strong pressures in the previous sessions.
As such, zones 15,356-15,423 act as an intermediate resistance. If not trespassed, it will continue to offer short possibilities. Above 15,464, the second weekly target of zone 15,665 may be within reach. We add a further target around the 15,755 area. We feel the real target of the DAX is to reach the 16,000-16,200 area.
The first weekly support can be identified in a wide area; 15,119-15,017-14,981. This happens because price has created much bigger support zones where we will continue to see ups and downs. Below 15,119 and within range 15,017-14,981, we should keep in mind the possibility of quick corrections. The target is the intermediate support 14,918 (former resistance) and then 14,804-14,842, a range created a fortnight ago. This last area is pivotal on a weekly level and to avoid a short term bearish reversal.
14,744 and 14,687 are important support levels. If these levels are lost, there may be reason to expect fast declines towards the key area created last week 14,600-14,545.
Further support levels are around 14,492-14,465 and then near 14,391. The weekly key level is placed in the 14,400 area. The loss of this level could lead to lasting declines.
The 14,301 area remains particularly important. A loss of this level together with 14,231 might trigger a quick fall to buy zones 14,144-14,096 and 14,003-13,974 seen last on Monday the 8th. Conversely, if zone 14,301-14,231 sees an upward turn, it could be the weekly low and offer excellent buying opportunities.
It’s very important for area 13,977-13,877 to hold as it is on a weekly level. The key monthly support remains in the 13,821 area. As long as it is not lost, risks of further declines are likely to be denied. Otherwise, the maintenance of the support will favour bullish phases for the German index.
If the price returns below 13,750 without a quick reversal it may target 13,650 again and from there onwards to an important support in area 13,620-13,657. If surpassed, the next downward extension may be 13,373-13,289. These areas represent excellent opportunities for long re-entries provided that US indices do not show bearish excesses and that volumes are not too high. Otherwise, shorts may be the preferred trade.
If the 13,373-13,289 area is breached, there are no obstacles until the yearly supports touched in December; 13,142 and 13,020. The possibility of a strong downward acceleration increases considerably if the price goes beyond the 13,000 points area. In this case, area 12,723-12,635 is the first relevant support and we cannot exclude reaching it in one or two trading sessions. This area is a key support zone, a clear break to the downside of 12,500 points would open the way to further falls.
Key supports remain at 12,155-12,237 and 11,766; below these levels we should expect a trend change. After the possible loss of 11,542, the first targets are in the 11,214-11,095 area. From here, it is possible to extend down to 10,766-10,480, last touched on the 15th of May 2020.
US30 – Profit-taking on the quarterly reports of Amazon, Apple and Chevron weighed on the weekly performance of the Dow Jones.
The US index was trapped all week between the key resistance 34,161, which needs to be broken down for new gains and the super support at 33,725, which saw four consecutive days of strong buying and touching, preventing any weekly reversal.
The price was stuck for the whole week in the range 34,161-33,725.
If the price comes back above 34,161, it is very likely that it will reach 34,351. The next target will be looking for 34,500-34,800 area. 35,000 points are still possible.
Intermediate support remains within range 34,015-33,976. It is likely that prices will fall below this area if the price breaks through it. However, 33,725 is a strong support that is difficult to touch without an increase in volatility.
The 33,585-33,427 area is a very strong support. Even if the price may reach it fast, it is not likely to break it to the downside at the first attempt unless the market sentiment changes significantly together with a sudden increase of the VIX.
Weekly support remains at 33,314 points. Intermediate support for buyers can be found in the 33,225-33,146 area. We need to monitor 32,956 because if breached, we could see bearish pressures.
Buying support levels can be 32,761-32,638 and 32,308. The strong buying zone created three weeks ago in the 32,308-32,137 area is confirmed. Only below it we could see stronger bearish pressures, with possible weekly trend changes.
The old resistance zones of last week would be the targets below 32,137-31,741-31,986 and 31,521. These levels may be optimal for buying opportunities.
Below area 31,234-31,181, we might see new bearish pressures. However, a break to the downside of the support 30,986-30,922 might be necessary. As we indicated, this move has led to a nice V-reversal which remains very important at the weekly level.
Below 30,986-30,922, the game is played on the support level at 30,648. If that is lost, we will look for 30,476 and vital area 30,098-30,260. The loss of the latter can signal new strength in the bearish trend. If held, it could be a perfect area for new upward reversals.
The 29,618 level will continue to determine the trend of the index in the coming weeks. Below it, we could see a strong bearish movement.
We remind you that only the loss of the weekly support 28,880-29,119 could put the annual bullish trend in crisis. Below this level, we have intermediate support around 28,319-28,051. A close below 27,762-27,625 would undermine the current bullish scenario.
Area 27,019-26,650 is vital as it has been successfully tested and has led to strong bullishness. Sellers will come back strongly if the 26,110 level is broken down. The decline may extend to the main low seen on 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 24680. Very important annual support remains at 24,309.
IMPORTANT NOTE: Friday’s non-farm payrolls data may help in the directionality of the coming weeks. However, it cannot be ruled out that the market may remain in a range until the data is published. The Dax maintains low volatility in contrast to the indices. Using intraday strategies can help to have better operations. In case of high volatility, use pullbacks to enter.
Have a good trading week!
Research provided by Giancarlo Prisco
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