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Andreas Zanin
Analysis | March 22, 2021

DAX30 & DOW JONES: weekly analysis 22 – 26 MAR

Market movers

Powell reassured the markets this week by confirming that monetary stimulus efforts launched last year will continue until the economic recovery is complete. Rising inflation is seen as a temporary phenomenon and yield curve rate hikes are seen in the same way.

Unfortunately, reality is quite different. Although the markets celebrated with a nice rise, bond rates rose to 1.7% as the speed of the vaccination process in the US and the UK is taken into account. The savings rate accumulated by US citizens together with the fiscal stimulus is also a factor. All these elements may lead to a fast-overheating process of inflation this summer through a phenomenon called “revenge spending”.

Once the weeks of central bank meetings are over, investors’ attention will return to the vaccination campaign and bond market tensions. The vaccination campaign will have to improve, especially in Europe, where the delay is considerable. The most important macroeconomic data in Europe include PMI indices in Germany, in the Eurozone and the IFO index in Germany. In the U.S., the focus is on durable goods orders and inflation.

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

Inflationary spirals are putting pressure on the markets. As it stands, bullish strength is not showing any concrete signs of reversal. We should see a similar scenario as last week. Initially we should see sideways/ bearish days and then new highs by Friday.  It is good to monitor these declines because they could lead to a different scenario. Monday and Tuesday will be key days.

DE30 – Last week the German index, after a few days of lateral moves, managed to stay above 14,589 points, leading to the first target of 14,804 points. The same 14,589, in Friday’s correction, was maintained. If this week the 14,545-14,589 range is maintained, it could try to test the 14,744 level, an important resistance from which we could see new falls.  If they are broken, targets will be the highs in the 14804 area and then 14,918. We might see the price also over 15,000 points.

First support levels are around 14,492-14,465 and then near 14,391. The weekly key level is placed in the 14,400 area. The loss of this level could lead to lasting declines.

The 14,301 area remains particularly important. A loss of this level together with 14,231 might trigger a quick fall to buy zones 14,144-14,096 and 14,003-13,974 seen last Monday the 8th. Conversely, 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 surpassed, the 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 may be the preferred trade.

If the 13,373-13,289 area is breached, 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 expect 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 – Tensions in the bond markets also had their effect on the Dow Jones, albeit to a lesser extent than the rest of the US indices. Cyclical rotation continues strongly as the vaccination process progresses and approaches normalcy.

Last week the US index opened above the old resistance 31,741, making new all-time highs above 33,000 points. The resistance zone marked in Friday’s fall is located in the 32,761-32,956 area. A break-down and maintenance of the resistance zone opens the door to new all-time highs with targets in the 33,427-33,741 area, passing through 33,200.

Support levels suitable for buying are at 32,638 and 32,308. The strong buying zone created a fortnight ago is located in the area 32,308-32,137. Only below it we can see stronger bearish pressures with possible changes in weekly trends. However, it is good to keep in mind 32,638 as a weekly level not to be missed. If the price closes the week below it, it could lead to lasting declines.

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 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 vital as it 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 may 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 week, the US market will open an hour earlier due to the time change on Sunday. We will return to normal on Monday, March 29th. The rollover phase is over, but we still cannot exclude lateral phases. Therefore, we should remain cautious and take into account the time lag on the European indices. Always follow the 10-year T-bond yields and the Vix.

Have a good trading week!

 

 

Research provided by Giancarlo Prisco

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