Photo - Andreas Zanin
Andreas Zanin
Analysis | December 13, 2021

DAX30 & DOW JONES: weekly analysis 13 DEC – 17 DEC

Market movers

Last week ended positively for equity indices, which recovered most of the losses seen in recent weeks on fears over the omicron variant.

Among the assets with the best weekly performances we have plenty of choice, especially among equity indices and energy commodities (except natural gas). We chose to reward one currency: the Australian dollar which gained against all the major international currencies.

Cryptocurrencies and precious metals fared poorly.

Next week will be very rich in macroeconomic events with the most important appointment being the meeting of the Federal Reserve which will have to unveil its monetary policy plans. It is a decisive moment: expectations are for an acceleration of the tapering process and a possible opening for an interest rate hike in the first half of 2022. Lots of central bank meetings: the governing councils of the ECB, Norges Bank, Swiss National Bank, Bank of England and Bank of Japan will be meeting. Finally, this is also the week of quarterly maturities.

 

Analysis of the week and scenarios for DAX and Dow Jones

On Wednesday, after the strong rebound of the previous day, we had confirmation of the trend reversal on a weekly level. The recovery on Tuesday confirmed the possible start of the last part of the Christmas rally, but there is still a very strong divergence and the selling can come back in abundance when the market becomes more vulnerable.

In any case, the recovered volumes and resistances tell us that we are buyers in the market. The uptrend might become solid and hold until next quarter. This week we have the FED and we will have to understand what will happen to the monetary policy from Powell’s words after Friday’s inflation data.

We will go step by step and try to understand the moves of the “bigs” and their position adjustments.

The S&P500 index saw a break-down of the 4700 area this week, holding at 4671. The price has seen the approach to the 4715-4738 area, the last resistance before new historical highs. It is very likely to see 4800 this week and then new all-time highs.  The weekly support remains in line with last week’s support: 4596-577. Only below it, we will see the bearish forces regain the upper hand. It will be important to see how the price behaves if it touches the 4429-4474 area, the loss of which opens up wider bearish scenarios. We remember that the loss of 4300 would represent a clear reversal signal. The S&P500 index, for now, has returned to the bullish side.

How to move? Bullish sideways phase between Monday and Tuesday. If on Wednesday, the day of the FED meeting, we do not see a continuation of the rally or a reversal, Friday’s close could a further confirmation of the bullish movement.

DE40 – The German index made a strong rebound on Monday and Tuesday, breaking through the upper part of the range where the price had been stuck for more than a week. The 15516-568 were broken down with large volumes, which closed the volumetric gap left on the 26th of November; the prices reached our target perfectly in the 15875 area in one session, as we explained last week. From here the price made a pullback to the previous resistance 15516-568, now support for the following sessions, closing Friday slightly higher.

The 15875 area can be broken down this week and see an attack on the previous highs. On the other hand, if the price fails to return or is pushed back to the 15755-15822 area, we will have excellent short opportunities.  A recovery of 16014 first and then 16174 will offer a new bullish trend. The Dax reached around 16300, but the target of 16500 is very difficult for this year, unless the current strength of the index continues this week.

15516-568 is the weekly support. The weekly key area is located in the 15332-281 area, which maintains the current bullish strength of the DAX. Intermediate support at 15409 area.

Monthly support 15119-15043. The 15000 points area remains crucial. We always watch the volumetric supports 15017-14981 and 14842-804. The loss of these last two areas opens to new lows, with the first target in the 14600-14441 area. Vice versa a rebound on these supports can start a process of reversal to the upside, as already happened last week. Extensions in the area 14231-13974.

If by next Friday the prices remain above 15516-568, we will see a possibility of a bullish continuation; however, the behavior of the price in the 16000 points area will confirm whether or not we will see new all-time highs. Below 15281, on the other hand, the weekly trend may return to the downside.

US30 – Despite a still rising inflation, the return of the risk-on phase led to a V reversal after a month of negativity, which saw the recovery of 90% of the fall in a few days.

Prices violently broke 35197, the weekly resistance and made the expected jump on Tuesday, touching the 35730-847 area in one session. After that, they closed the week very close to 36068, from where they will restart for new all-time highs, if the current pressure remains constant. Above 36293 we will have a chance of further upward volumetric pushes.

The key supports remain the areas 35847-730 and 35599-511. Below them the Dow can test the break-down zone of 35197 and then the monthly support zone 34572-34371. Only below the latter the trend can really turn down.

The 34015 remains a key area on a monthly level. Confirmed support 33980-33725 up to key support 33608.

Next support at 33215 and confirmed 32956. The latter should be monitored as a loss there could lead to fast and new bearish pressures.

Buying supports at 32761-638 and 32308. The strong buying zone created months ago at 32308-32137 is confirmed. Only below it we can see stronger bearish pressures, with possible structural trend changes.

 

IMPORTANT NOTE: After this super rise one is led to believe that the stock market might not think that the Fed will accelerate on tapering and in some way might be challenging the Fed to do so. But it seems highly likely, given the strength of the employment report last week and the high inflation rates, that the Fed is not bluffing at all and is ready to end tapering as soon as possible. The stock market may be playing arm wrestling with the Fed. It doesn’t seem like the best of strategies at the moment and could end badly if the stock market gets it wrong.

This week will be very important to see if the supports will hold or not. If they are maintained, we can continue to look for buying opportunities. Watch out for Wednesday and Friday.

Also this week and’ wise to note the openings of Monday’ and the closings of Friday, in order to have confirmation or denial of the tendency in course. Avoid overtrading and watch out for volatility imparted by HFTs.  Mark any gaps that may appear during the week, with particular attention to those of Monday.

 

Good trading!

 

 

Research provided by Giancarlo Prisco

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