Market movers
In the last few days, analysts around the world are focusing on one question. How many years are necessary for countries around the world to achieve herd immunity so that we can declare victory over the coronavirus that has radically changed the social and economic life on our planet?
This number is not encouraging; it will take seven years for the world to achieve herd immunity. However, investors prefer to focus on individual countries and to see which ones will return to normality sooner, provided that the ‘new variants’ of the virus will not slow down the process further.
Israel, the UK and the US are the countries that could achieve herd immunity this year. Europe, on the other hand, could take 3-4 years at current rates. This is a big problem.
These elements could have a significant impact on the country’s recovery and as a consequence, on index prices. We will have to take this into account in our operations.
Last week’s data on the US economy show some job growth, albeit at a slower pace than expected, according to NFP and ADP data.
In this regard, it will be interesting to read the Fed’s monetary policy report due on Thursday.
The coming week offers a few interesting macro data points, German data on industrial production (Monday) and inflation (Wednesday), unemployment benefits and inflation on Wednesday and Thursday in the US and on Friday we will record the UK Q4 GDP.
In addition to the short-term energy forecast, which will be published on Tuesday, OPEC+ will meet again on the Thursday 11th. The strategy of production cuts has worked and allowed oil prices to rise. It will be interesting to see what producing countries do on the demand side with the new increase in Covid cases and after having depleted most of their stocks in recent months.
Analysis of the week and scenarios for the DAX and Dow Jones
As highlighted last week, the current bearish scenario could come to a halt at any time, especially in the presence of a gap down. This was possible due to the gap down seen last Monday evening when the quick closure of the gap with a V reversal gave a clear and strong bullish signal. The market has maintained the upward trend throughout the week, but we need to carefully monitor the previous supports. If there are no increases in volatility and sharp volumes, along with the VIX, we will see new highs this week as well in conjunction with perhaps some sideway phases. However, we should keep in mind a possible strong correction in the coming weeks alluding to new rises until the summer.
DE30 – On Monday 1st, the German index opened the week with a strong rebound at the opening of the overnight market just after touching the 13,289 area. As abundantly described in last week’s report, the recovery of the 13,500 area brought prices quickly to the previous weekly support 13,752. In the following days, the resistance areas 13,841-887/13,946-13,988 were knocked down, touching 14,072 on Friday, the last level to be tested before new all-time highs. If the price holds above 14,072, the first targets are 14,231 and 14,465. If the pressure continues, we will calculate 600-700 weekly points from 14,000 points.
This week on opening we might see some corrective movements. If this happens, areas 13,841-13,887 and 13,946-13,988 will offer good points for a long retracement. We keep in mind that if the price does not keep the 14,000 points psychological threshold, the retracement could continue in the following days.
Weekly support lies in the area 13,806-13,752. This area, if surpassed, opens the door to further declines. The next support is around area 13,620-13,537. If this is broken, the next extension may be 13,373-13,289. These areas are good opportunities for long retracements, provided that the US indices do not show bearish excesses and volumes are not too high. Otherwise, a short trade might be preferred.
If the 13,373-13,289 area is broken to the downside, we have practically nothing until the annual support marked in December; 13,142 and 13,020. The possibility of a strong downward acceleration increases significantly if the price goes beyond the 13,000 points area. In this case, the 12,723-12,635 area is the first relevant support so we cannot rule out reaching this area in one or two trading sessions. This area is a key support zone; a strong break to the downside of 12,500 points would open the door to further falls.
Key support levels are at 12,155-12,237 and 11,766. Below these levels which we should expect a trend change. Beyond 11,542, the first targets are identifiable in the area 11,214-11,095, from here possible extension down to 10,766-10,480 last touched May 15th.
US30 – Last week the Dow Jones almost touched 29,618, a very important support that has been marked several times in recent weeks. With the gap down on Monday, the price made a powerful rebound. After breaking 30,260, which is a possible rebound point, the price surpassed 30,476. After reaching 30,922-30,986, the price closed on Friday at the last resistance of the Dow around 31,181-31,234. We are preparing to see it reach new all-times highs, first targets 31,521 and 31,833, with extension to 32,309.
This week’s macro data helped this rebound considerably. This is a nodal point for the index, if the price remains above 31,181 this week, the bullish momentum will be confirmed and foreshadows all-time highs.
Levels 30,922-30,986 are an ideal support for pullback purchases as well as 30,476 and 30,098-30,260. The loss of the latter area can signal a new downtrend. This is highly unlikely but we might still see a small correction due to the strong rally. This will not change the trend but if confirmed, could trigger a downtrend for 2 or 3 days.
The support level at 29,618 will continue to determine the trend of the index in the coming weeks. Below it, we might see a new strong bearish movement.
Only the loss of the weekly support at 28,880-29,119 could undermine the current trend. Below this area we have intermediate support 28,319-28,051. A close below 27,762-27,625 would undermine the current bullish scenario.
The 27,019-26,650 is an area not to be missed. This area was successfully tested and led to a strong rally. Sellers will come back strongly if the 26,110 level is broken to the downside. The decline can extend to the main low of July 30th 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. Very important annual support remains at 24,309.
IMPORTANT NOTE: The “ping pong” of prices is an element not to be underestimated this week. We will witness numerous false movements that will create bullish and bearish traps. As for Monday’s opening, a gap-up that is not closed during the day may signal a nice bullish movement. Conversely, we could see a good correction. It is recommended to make few trades and use pullbacks to enter instead of breakouts.
Have a good trading week!
Research provided by Giancarlo Prisco
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