DAX30 & DOW JONES: weekly analysis 22 – 26 FEB
Market Movements
Last week we have seen some timid profit taking. In the US market, the S&P500 remained flattened thanks to traders buying in the energy sector while profit taking prevailed in the technology sector. The cyclical rotation seems to be continuing. The European market is also showing strong bullish sentiments; it will all depend on the vaccination process and a rapid return to normality.
The latest US inflation figures show a sharp rise, which is worrying traders. The US government bond yield at 1.3% is at the same level as early levels reached a year ago; the put/call ratio for the S&P500 has risen to November 2019 levels. There are no signs of reversal for now but given all of these elements, we’ll need to be careful in the coming weeks.
This week will bring very important data from the German and European economies. In addition to the German IFO business confidence index (Monday) and the Gfk consumer sentiment report (Thursday), the first preliminary data on the Eurozone consumer price index for January will also be released on Tuesday.
There will be more interest in the German Q4 GDP figure (the most acute moment of the second wave of contagion) but above all, on Thursday, the preliminary GDP figure for the same period in the US.
Analysis of the week and scenarios for the DAX and Dow Jones
There has been a lot of indecision in the financial markets this week. In fact, there is still no ground to see a sharp decline and thus open short positions. For the same reasons, there are no signals to start buying assets or opening long positions. All one can do for now is to follow the price trends and take nothing for granted. Until the next FED meeting, scheduled for 16th-17th of March, anything can happen and so it would be wise to be prepared for any scenario.
DE30 – The German index opened the week with the intention to break 14,127, breaking above 14,072 like last week. This time it did not break above 14,157 since the price made a continuous descent from Tuesday until Friday. The February price movement is very similar to the one from mid-January; the sideways bearish trend will not end if the DAX does not recover the 14,072 level and hold it on a weekly basis.
The 14,072 level will continue to be a key level; if the price stays above it we will see new rises and new all-time highs. A new break to the upside of 14,127 level and last Monday’s highs is necessary.
The first targets are 14,231 then 14,465. If the pressure continues, we calculate 600-700 points from 14,000 points in the coming weeks.
On Monday, the Dax needs to position itself above Friday’s highs. If it does not, the bearish strength might take the prices below 13,887-13,841, from where it may dive towards the monthly support 13,806-13,752.
If the price breaks to the downside of this area, we might experience further declines. The next support is in the 13,620-13,537 area. A new break to the downside would cause extension to 13,373-13,289. These areas are good opportunities for long retracements provided that the US indices do not show strong bearish momentum and the volumes are not excessive. Otherwise short will be the preferred trade.
If the area 13,373-13,289 is broken to the downside, we have practically nothing until the annual support levels marked in December: 13,142 and 13,020. The possibility of a strong downward acceleration increases significantly if the price goes below the 13,000 points area. In this case, the 12,723-12,635 area would be the first relevant support and we cannot rule out reaching this range in one or two trading sessions. Please note that this area is a key support zone; a decisive break to the downside of 12,500 points would open the door to further falls.
Next support levels are at 12,155-12,237 and 11,766. Below these levels, we should expect a trend change. If 11,542 is surpassed, the first targets are identifiable around area 11,214-11,095. From here on, possible downward extensions down to 10,766-10,480 last touched on the 15th of May.
US30 – The Dow Jones Index suffered some downward pressure last week from some of its components such as Walmart and Apple.
Based on the weekly trend the price doesn’t show strong signs but only small and short corrections instead.
The 31,392 level indicated last week was beaten several times by sellers despite never managing to achieve a bigger drop. The support zone 31,234-31,181 was never reached. On the other hand, the price successfully maintained at 31,521, providing the basis for new all-time highs.
We can see the effect of cyclical rotation on the Dow. If the price will stabilize above 31,521, we might have 31,704-31,833 as a target with a probable extension to 32,309.
If 31,392 is lost with breakout and acceleration, we could instead see a weekly corrective scenario. Intermediate target confirmed at 31,234-31,181 as first support levels, and then it may try to reach 30.986-30,922 area through 31,104 where we have seen strong purchases in recent weeks. If prices do not fall with strong volumetric pressures and increased volatility, these areas will be very useful to look for new long entries.
Support around 30,922-30,986 could be suitable for pullback purchases as well as 30,476 and support 30,098-30,260. The loss of the latter area may signal a resumption of the downtrend. This is highly unlikely but we might still see a small correction due to the strong rally. This will not change the trend but if confirmed, it could trigger a downtrend for 2 or 3 days.
The 29,618 level will continue to determine the trend of the index in the coming weeks. Below it, we could see a deep bearish movement.
Only the loss of the weekly support around 28,880-29,119 could undermine the current trend. Below these levels, there is an intermediate support around area 28,319-28,051. A close below 27,762-27,625 would undermine bullish scenario we are seeing now.
The 27,019-26,650 area is an area not to be missed. This area was successfully tested and led to a strong rally. Sellers will come back strongly if the 26,110 level is broken to the downside. 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 24,680. Very important annual support remains at 24,309.
IMPORTANT NOTE: US Treasury bond yields should be watched closely this week. If they continue to rise with speed and strength, we might see a contextual sharp fall in equity indices. If the prices accelerate downwards for more than two sessions with rising volumes and high volatility, we will look for short entries on a weekly basis as well. Keep an eye on last week’s support and Monday’s gap-up.
Have a good trading week!
Research provided by Giancarlo Prisco
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