DAX30 & DOW JONES: weekly analysis 11 – 15 Jan

Market movers

The year 2020 was an unforgettable one for traders and investors, and 2021 got off to a particularly virulent start: the protests on Capitol Hill, destined to go down in history, failed to dampen global markets’ optimism at the now official prospect of a Democratic government under Joe Biden.

Investors are betting on a macro recovery coupled with a recovery in US inflation. This happens thanks to the launch of even more generous fiscal stimuli to support the companies and households hardest hit by the pandemic.

We are in a phase of the market where traders focus only on positive news. Everyone seems to have forgotten, for now, that Biden will raise taxes and probably take back with interest what he generously gave in this pandemic time.

It’s good to remember that when a trend starts at the beginning of the year, everyone scrambles to follow it, because there is too much fear of losing it, especially after what happened in 2020. This does not mean that it is a good idea, and a careful selection of the instruments in which we are going to invest will be necessary.

In the meantime, in Europe, the anti-coupled vaccination campaign continues and developments in the difficult UK situation are being closely watched.

This week, watch out for December inflation data: China, USA, France and Spain, while towards the end of the week we expect Germany’s preliminary quarterly GDP, China’s final GDP and the UK’s December GDP.

Analysis of the week and scenarios for the DAX and Dow Jones

Despite the fact that a reversal seemed close, on the 6th of January the market marked a new path to the upside and maybe it will go up again for 3-4 weeks. This scenario can change if we face a day with strong bearish directionality, followed by at least 3 bearish sessions with high volatility. The projection is for a rise of 5-10% within a month.

DE30 – The DAX reached this week our target for 2020 at 14000 points. After creating a double high in the 13887-841 area at the end of December, the price broke through this resistance last Wednesday, offering new highs for the rest of the week. Looking at the short term, the price will need to stay above 14025, in order to continue and push towards new highs, first targets at 14231 and 14465.

The area 13887-841 is the weekly support; price corrections that will not bring to break this area to the downside, will confirm the strength of the bullish trend. On the other side if this area is cleared, will lead the price to test the next support at 13752; if we break to the downside 13650 and then the monthly support 13551-13480, with extensions to 13373.

With the price falling further, we will need to be careful of support area 13320-300, and then further down until the annual supports marked in December: 13142 and 13020. The possibility of a strong downward acceleration increases significantly if the price goes beyond the area 13000 points. In this case the area 12723-635 is the first relevant support, so we cannot exclude the achievement of this area in one or two trading sessions. We also remind that this area is the key support zone; a heavy break-down of 12,500 points would open the door to further falls.

Key supports at 12155-12237 and 11766, below which we should be ready for a trend change. Lost 11542 the first targets are identifiable in the area 11214-11095; from here possible extension up to 10766-10480, touched the last time on 15 May.

US30 – In the first trading week of 2021, the Dow Jones reached our 2020 annual target of 30715-31000 points. In the short term, the maintenance of 30922 will signal the presence of buyers and thus the strength of the uptrend. This will lead to new tests of 31126 and, if broken, to new all-time highs. First targets 31521 and 31833, with extension to 32309.

Below 30922, the first relevant support is in the 30715-30648 area; then we have 30232-30098.

As long as 30232 is maintained, the weekly trend will remain bullish; a move below 29624 will mean an inverson of the trend to the downside.

A sustained move below 30220 will indicate the presence of sellers. The first target is 29964, followed by 29820. If 29820 fails to support the trend, the target to the downside will be 29751. From here possible extension to key support 29618.

Key level at 29618 that will continue to determine the trend of the index in the coming weeks.

Clearing the weekly support 28880-29119 could undermine the current trend. Below this area we have the intermediate support 28319-28051. A close below 27762-625 would undermine the current bullish scenario.

The 27019-26650 area has been successfully tested and has led to strong bullishness. The sellers will come back strongly if the 26110 level is broken to the downside. The decline will extend to the main low of July 30 at 25777. This is a potential trigger point for a new downward acceleration with three potential main lower targets at 25399, 25149 and 24680. Very important annual support at 24309.

IMPORTANT NOTE – Monday gaps are always important in determining the weekly trend. A fast gap closure or non-closing will help us understand the possible direction of the price. Be careful and watch for these areas where gaps occur.

May it be a pips-rich 2021!

Research provided by Giancarlo Prisco

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