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Andreas Zanin
Analysis | March 15, 2021

DAX30 & DOW JONES: weekly analysis 15 – 19 MAR

Market movers

The performance of financial markets in the coming months will depend on inflation dynamics. We have seen this clearly throughout week.

The more concerns about rising inflation increase, the more yield curve rates will tend to rise and vice versa.

We have seen that in the stock market where rate hikes linked to inflationary expectations lead to violent profit-taking on tech stocks, a strengthening of the dollar, a fall in gold, steepening of yield curves and the closing of the carry trade with emerging currencies.

This will be one of the catalysts to watch in our analysis along with the VIX.

On Wednesday, after last Thursday’s meeting of the European Central Bank, it will be the turn of the Federal Reserve followed by meetings of the Bank of England and the Bank of Japan later in the week.

Powell will have to be very careful in his speech as it is a particularly difficult time for the bond markets.

On Wednesday, the February consumer price reading for the Eurozone is also expected.

On Tuesday the ZEW survey will take place. Despite an overall negative outcome, we should see a slight improvement. On Thursday, weekly US unemployment claims should be reported.

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

The last few days, amidst intraday highs and lows, have all been on the upside and further rises are expected in the stock markets next week. The opening of Monday the 8th showed a bullish reaction and, with the exception of the Nasdaq, brought the main indices to new all-time highs or thereabouts. Therefore, it may still be possible to see new rises even if some retracements are possible at the beginning of the week.

DE30 – On Monday 8th, the German index broke through all the bullish levels indicated last week; 14,072, 14,127 and 14,183. The latter not only took the prices well above our targets 14,231-14,465, but also marked a long-lasting reversal as the price did not return below 14,183.

At this point, the Dax can make new all-time highs; a price position above 14,589 points would target the 14,804-14,918 area.

First support levels are in the area of 14,492-14,465 and 14,391. The weekly key level is placed at 14,301. A loss of this level along with 14,231 might trigger a quick fall to last Monday’s buy zones 14,144-14,096 and 14,003-13,974. On the opposite, if the 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 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 an important support in the area 13,620-13,657. If lost, 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 will be the preferred trade.

If the 13,373-13,289 area is lost, 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 the 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 prepare for 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 – The Dow Jones this week celebrated President Joe Biden’s signing of his $1.9 trillion coronavirus aid package along with the stabilisation of Treasury yields.

Last week, during the Asian open, the US index held key level 31,521 before breaking through the resistance at 31,741-31,986. We reached our target at 32,309 and stayed the course another 500 points higher. Cyclical rotation is getting stronger as the vaccination process progresses and approaches normalcy.

We can expect buys on support levels at 32,638 and 32,308. The strong buying zone created last week is located at 32,308-32,137. Only below this level we can 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 the 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 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 in crisis the annual bullish trend. 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 the area not to be missed. This area 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 will 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: For the next two weeks, the US market will open an hour earlier due to the time change on Sunday the 14th. We will return to normality on Monday 29th of March. Also this week we will be in the midst of a rollover phase until next Friday. Caution is advised and preferable as we will see alternate high volatility phases with strong lateral phases in short periods of time.

Have a good trading week!

 

 

Research provided by Giancarlo Prisco

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