DAX30 & DOW JONES: weekly analysis 22 – 26 NOV

Market movers

Last week ended on a slightly negative note for many equity indices on the back of investor fears of further lockdowns in Europe.

Among the best performing assets of the week, we saw coffee and the US dollar. Also the rally in sterling was noteworthy. The British pound showed a strong weekly performance on the back of inflation data published in recent days, the highest in 10 years. The euro, oil and Bitcoin fell.

The coming week will be full of macroeconomic events mainly concentrated on Wednesday, as the following day is Thanksgiving Day in the United States. Particular attention should be paid to the consumer price index, the core PCE index, because it is the main measure of inflation used by the FED. On Wednesday evening, the minutes of the latest FOMC meeting will also be published, in order to understand the splits within the operating committee on monetary strategies. Finally, we highlight the IFO index in Germany, along with the third quarter US GDP reading. Friday is an important day for global consumer spending. It is Black Friday, the day of discounts that starts the Christmas sales season.

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

This week the indices saw a correction, but to different degrees. The S&P500 made a very slight retracement from the new all-time highs in 4,724 to 4,667, without touching the weekly support zone 4,618-4,586. Remember that the loss of 4300 would represent a clear bearish signal. This week we maintain the scenario of the previous one, with a possible approach to 4,900 as prices may return to push upwards.

The indices can maintain the upward trend until the next FED meeting in mid-December and aim for a 10 percent rise, unless there is a sudden change in sentiment and trend.  It is fair to say, however, that Friday’s close could see a retracement of at least 5 percent.

Monday’s opening could see a rebound, but also a possible negative close at the end of the day. Wall Street will be in half service for the Thanksgiving holiday, so Wednesday’s close will confirm whether or not the retracement continues on many indices. However, as long as the S&P500 remains tonic, the declines will be short-lived. That is why caution is called for.

DE40 – The German index reached new all-time highs, at 16,298 area on Friday’s session. The list advanced all week with extreme slowness, but at the end of the week we saw a reversal of just over 200 points. An important bearish signal.

The 16,076 was confirmed as the key support: if the prices do not recover first the 16,204 and then the 16,276, it is very likely to see further declines. The target of 16,500 is still possible.

To watch 16,014; if the price remains above 16,077 we could follow advancing, vice versa it is possible to see an approach to the weekly support in the 15,974 area.

Intermediate support for buying at 15849 and 15,788-15,755 area, in case of bearish pressures.

Key support at 15,516-15,645 area; 15,516-15,463 area is a monthly support. Support in 15,363 area, along with 15,241, remain valid and useful for buying. Below this last area the downward pressure can return with vigor.

The key support zone 15,119-15,043 is also confirmed. The zone of 15,000 points remains the annual support. 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 the first target in the 14,600-14,441 area. Vice versa a rebound on these supports can start a process of reversal to the upside, as already happened last week.

If by next Friday prices will remain above 15,974-15,889, we will see a continuation of the uptrend, but the behaviour of the price in the 16,000 points area will confirm whether or not we have reached the annual maximum. Below 15,241, on the other hand, the monthly trend may return to the downside.

US30 – The Dow Jones index suffered a heavy weekly decline (more than 800 points), as fears of new blockades in Europe to curb the spread of COVID-19 pushed investors to abandon banking stocks, energy and hotels such as airlines and hotels, and to invest in technology stocks (the Nasdaq closed very close to new all-time highs).

On Tuesday, the index touched the 36,293 area, and then retraced the rest of the week to the 35,599 area. The Dow closed with a very slight pullback.

If the price will be above 36,293, it is still possible to see an approach to 37,000 points.

The weekly support is now in the 35,599-35,730 area. 35,511-35,404 is a relevant support area. The recovery of the 35,848 area can lead to some bullish pressure, but only a weekly close above 36068 would guarantee a bullish relaxation. It is also necessary to see relevant volumes in order to have the confirmation of a new rise.

We monitor the support in the 34,871 area, below which some bearish momentum can appear and can be reached if the price remains below 35,404. The loss of the 34,372 area might open up new bearish pressures.

The 34,015 remains a key area on the monthly level. Confirmed the support 33,980-33,725 up to the key support 33,608.

Next support at 33,215 and confirmed 32,956. The latter should be monitored as a loss there could lead to fast and new bearish pressures.

Buying supports at 32,761-32,638 and 32,308. The strong buying zone created weeks ago at 32,308-32,137 is confirmed. Only below it we can see stronger bearish pressures, with possible structural trend changes.

IMPORTANT NOTE: The Dow Jones decline is due to portfolio rotations. The Nasdaq remains strongly bullish and the S&P500 remained very close to its new all-time highs. If the indices do not have an unambiguous pressure, these declines are simple corrections. So, it is necessary to choose carefully which index to buy and which one to sell, according to the pressure offered by the investors. However, the supports and the volatility should be watched continuously, since the trend can see strong reversals upwards or strong accelerations downwards.

If last week’s supports are maintained, we can continue to look for buying opportunities.

Also, this week it is wise to note the openings of Monday and the closings of Friday, to have confirmation or denial of the trend in course. Avoid overtrading and keep an eye on the volatility imparted by HFTs.  To mark eventual gaps that can appear also during the week, with particular attention to those of Monday.

Research provided by Giancarlo Prisco

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