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Andreas Zanin
Analysis | December 20, 2021

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

Market movers

Last week was mostly about central banks. The message they have given us is unambiguous. Pandemic risk is no longer the focus. The focus has shifted to inflation. Or rather, the effects of the pandemic are no longer being looked at on the demand side but on the supply side. Central bankers are more concerned about the effects on production levels, labour shortages, and hence the scarcity of goods and hence the rise in prices, than about the fall in demand from the economic slowdown linked to the measures to contain the contagions. This is clear from the central banks’ statements. This change of focus is reflected in concrete actions aimed at changing monetary policy from accommodative to restrictive or less accommodative. This has led to strong bearish pressures.

The stock market is also suffering from investors’ fears about the spread of the omicron variant, especially in the UK and US.

The coming week will not be particularly rich in macroeconomic events. Interesting insights will come from the US with macro data on durable goods orders, inflation and the final GDP estimate for the third quarter.

 

Week analysis and scenarios for DAX and Dow Jones

On Thursday, after the previous day’s powerful rebound, we experienced considerable bearish pressure. The technical deadlines of the three witches were felt but there is no need to worry as long as the support levels hold. The movement of the week that has just ended for the European stock markets analysed did not change the graphic picture as the weekly candle was inside, i.e. contained within that of the previous week. In Wall Street, on the other hand, even though the closing was lower than the opening of the week, the movement is most likely one that will be followed by a week with a red start and then new bullish strength.

The S&P500 Index has seen this week new all-time highs in the 4743 area, breaking for a moment the 4713-748 resistance, and then closing with a decline of over 100 points, standing in the 4619 area.

It is still very likely to see 4800 this week and then new all-time highs.  The weekly support remains in line with last week’s: 4596-577. Only below it, we will see bearish forces regain the upper hand. We signal the intermediate resistance 4664-697 and the intermediate support 4525-4500.

It will be important to see how the price behaves if it touches the area 4429-4474, the loss of which opens up more extensive bearish scenarios. We remember that the loss of 4300 would represent a clear reversal signal.

How to move? Bearish phase between Monday and Tuesday and highs on Thursday (Friday the markets will be closed for the Christmas holidays).

DE40 – The German index remained in the volumetric range calculated last week, with false breaks and pullbacks, without any significant change in the weekly trend.

The 15516-568 range has been continuously broken and recovered, but the weakness has not been so strong as to lead the price to see the intermediate support 15409, which remained unbroken.

15755-822, the weekly volumetric resistance, saw several failed attempts to break through, leading to continued buying climax formations, offering excellent short entries seen last week. Only a recovery of this area on a daily basis will offer an important bullish signal, otherwise we may see more reversals on these levels.  The piece must then break down 15875. 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 surprises in the next two weeks.

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

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 price behaviour in the 16000 points area will confirm whether or not we will see new historical highs. Below 15281, however, the weekly trend can turn downwards.

US30 – The Dow Jones came under renewed pressure in Friday’s volatile session amid concerns over tighter monetary policy and the ongoing pandemic, leading to a losing week for the index.

Friday coincided with the expiration of stock options, index options, stock futures and index futures, a quarterly event known as “quadruple witching” that typically comes with high volatility. However, the correction is part of last week’s V-shaped reversal.

The index tried this week to break 36068 without success. The weekly close saw a break-down of the key support 35599-511 after several attempts in the previous sessions.

A move through 36068 and prices holding that level will be a strong bullish indication. Above 36293 we will have the possibility of further bullish volumetric pushes.

On the downside monitor first of all if prices manage to stabilize above 35511-599, because we will have the possibility of bullish distensions; a recovery of 35847 is a signal to follow.

If the prices stay below 35511-599, 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 turn downwards.

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 witness stronger bearish pressures, with possible structural trend changes.

 

IMPORTANT NOTE: The market remains volatile and nervous, the tug-of-war continues after the FED and everyone is waiting to see if the Christmas rally will continue. It’s part of the markets game, so the only viable option remains to follow key supports and resistances. The rest is talk.

This week will be very important to understand if Friday’s decline will be quickly reabsorbed. If so, we can continue looking for buying opportunities. Watch out for the close on Thursday.

Also this week it is wise to note Monday’s openings and Friday’s closings to confirm or deny the current trend. Avoid overtrading and watch out for volatility imparted by HFTs.  Mark any gaps that may also appear during the week, with particular attention to those on Monday.

 

Happy trading and happy holiday season!

 

 

Research provided by Giancarlo Prisco

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