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Andreas Zanin
Analysis | June 21, 2021

DAX30 & DOW JONES: weekly analysis 21 – 25 JUN

Market movers

The FED had a strong impact on the markets this week.  It simply announced that it was “beginning to consider tapering”, a statement which pushed traders to accelerate the partial close of trade positions opened over the last 6-9 months.

We have seen a flattening of the yield curve, a stronger dollar, profit taking in cyclical sectors and a return to the ever-beloved tech stocks.

In the stock market, we saw the Nasdaq Index over performing whilst the Dow and the S&P500 underperformed. We witnessed profit-taking on commodities and purchases on bonds with long maturities.

In practice, it is as if the market had skipped a step. It went from the current scenario of macro recovery and inflationary fears associated with an expansive monetary policy to a scenario of macro slowdown associated with a less expansive monetary policy.

Let us consider though that Friday was a day of quarterly technical maturities. It triggered a strong pre-summer correction which could be followed by another decline in August after the announcement of the tapering process by the FED. It is therefore, good to keep in mind that another rise in the next two months is still possible.

Next Thursday on the U.S. front, we will see the quarterly GDP data and the initial requests for unemployment benefits. Wednesday and Thursday, we will see the manufacturing data and the IFO index on the German side. Also, there will be speeches from Powell and Lagarde early in the week.

Analysis of the week and scenarios for DAX and Dow Jones

In the last two trading days of the week, the Fed has brought us to face an extraordinarily strong reversal, one much stronger than many traders’ expectations. This is a typical pre-summer sell off that will have to be confirmed this week to avoid false signals. We will have to monitor what will happen between Monday and Tuesday. The weekly trend is bearish, and we should see a slightly bullish start of the week and a close on Friday with new lows.

It will always be a good idea to monitor the intraday trends so that the current trend is clear and watch out for any weekly change in the trend.

DE30 – Despite some break-out attempts, the German index kept oscillating in a range of less than 100 points and only broke resistance in the 15,755 area through a vertical collapse on Friday during the overnight market.

The 15,606-15,578-15,545 area was broken with strong volumes and leading to an increase in volatility. The price closed the week within our key support zone of 15,423-15,384. Below these levels, there are concrete possibilities to see a major bearish reversal.

On the upside, first resistance is seen at 15,464 points. Above it, it is possible to witness a reversal with target the area of the previous support 15,606-15,578-15,545. If this area will not be knocked down, we will have the possibility to go short. The weekly trend can change only if the zone 15,661-15,707 will be recovered.

Below the support zone 15,423-15,384, the next target will be the 15,269-15,209 area. A key area to keep the bullish strength is confirmed at 15,209. All these levels are optimal buying entry points.

Supports in the area 15,119-15,062-15,043 are still weak after the rise of mid-May. Below them, a vertical fall would be interpreted as a probable new downtrend. We always watch the volumetric supports 15,017-14,981 and 14,842-14,804. The loss of these last two areas opens to new lows, with first target in the area 14,600-14,441.

US30 – After the opening of the FED to tapering and the profit taking on the cyclicals, the Dow Jones closed the bearish process that began last Monday with over 1000 points of loss.

After breaking down the weekly support placed in the 34,445-34,395 area, the US index literally broke through the 34,015-33,976, a fundamental level to maintain the weekly bullish tension. The continuous pullbacks with decreasing highs at each decline left no room for doubts.

The 33,873 and 33,585 were violated and the price closed the week at 33,000 points.

Possible pullbacks if the price manages to recover 33,411-33,508 area. Upward accelerations above 33,577 might target the resistance area 33,823-33,923. The 34,015-34,307 are a weekly resistance. Above it, price could have a chance to return to the uptrend looking for 34,395-34,570 and the final resistance 34,717-34,846.

On the downside the first support is seen in the 32,956 area. These needs to be monitored as their loss could lead to fast bearish pressures.

New entry point can be found at 32,761-32,638 and 32,308. The strong buying zone created weeks ago in the area 32,308-32,137 is confirmed. Below it, we can see stronger bearish pressures with possible weekly trend changes.

The old resistance zones could become bearish targets below 32,137- 31,741-31,986 and 31,521.

 

IMPORTANT NOTE: The decline has been very strong and, in this scenario, the best operativity is to wait for pullbacks to get back into the trend. We still need to monitor the trend of the S&P500 index which will be an important mirror of the weekly trend. If it starts to push down strongly, we will see a new choral decline for all indices.

This week, it is wise to take notes of Monday’s openings and Friday’s closings to confirm or deny the current trend. Avoid overtrading and keep an eye on the volatility impressed by HFT.  Mark any gaps that may appear during the week, with particular attention to those of Monday.

Have a good trading week!

 

Research provided by Giancarlo Prisco

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