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Andreas Zanin
Analysis | August 23, 2021

DAX30 & DOW JONES: weekly analysis 23 – 27 AUG

Market movers

Last week was signed by a major correction in equity indices after the publication of the minutes of the latest meeting of the FOMC, the operating arm of the Federal Reserve. In the minutes of the meeting of 27-28 July, FED members discussed the timing and plans to reduce monetary stimulus (currently monthly purchases of 120 billion dollars in Treasuries and Mortgage Backed Securities). The so-called tapering process, i.e. the tapering of the quantitative easing plan, should start by the end of 2021 and there could probably already be an announcement at the FED meeting on 21-22 September (but there will be no rate increase).

Investors will be keeping a close eye on the US this week, both for macroeconomic data (durable goods orders, real estate data, estimated GDP growth in the second quarter and PCE inflation) and for the economic forum to be held in Jackson Hole, Wyoming.

The symposium will bring together leading central bankers and finance ministers to discuss issues facing the world’s economies. It will be inevitable that Fed Chairman Jerome Powell will have to answer questions about the timing of the next tapering process. The core PCE index on Friday is an important data that could accelerate the choices on tapering.

In Europe, the German GDP and the Ifo index should be followed.

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

In spite of the important weekly correction of the stock indices, retracements always last a few days; although we observe several percentage points, the prices see new purchases and thus new rises. This is what we observed on Friday, especially for the S&P500, which closed the week in the maintenance zone of the weekly uptrend.

We could talk about a last minute recovery, denying once again at least a medium term correction (for now).

The S&P500 Index did not go below the 4.340-4.317 area; recovering in the 4.400 area, it turned bullish on a weekly basis. However, be alert to any increase in volatility and volumetric increase, because the summer sell-offs are violent and fast.

The other indices are still in the weekly bearish phase. It will be necessary to understand if we will see a new uptrend between Monday and Tuesday or if the lows of Friday will be broken down and an important correction might start.

Friday’s close will be key. If we do not see strong sell-offs with large daily hikes, the corrective scenario will be negated once again. Pay close attention to the size of the retracement in the first few days of the week, should this happen.

DE30 – After an up-and-down start to the week, swinging on the weekly resistance 15,975, the German index turned down on Wednesday, breaking the first support in the 15,825-15,822 area the next day. Until Friday, the price broke the weekly support 15,690 four times; on the fourth attempt the index turned strongly upwards, closing just above the weekly support in the 15,825-15,822 area.

The Dax needs to move above 15,975 to have a chance of new all-time highs.  From the 15,825 support, we might see a nice rebound, but the resistances start in the 15,900 area and up to the 15,975 mentioned above. Here it will be necessary to verify the strength of the rise, otherwise we could see new declines. Above 15,975 target 16,014 and then 16,200, in extension 16,500.

Below 15,794 the DAX could reverse. The area to monitor is that of 15,690 then 15,631. Fundamental the maintenance of these two supports otherwise we will go directly to the support clave in the area 15,501-15,545, under which the trend can begin a new bearish path.

Remains key the support zone in the 15,423-15,400 area. Below it we have 14,332, 15,216-15,176 and 15,119-15,071-15,043. All these levels are optimal for looking for buying points.

Below 15,043 points 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 the first target in the 14,600-14,441 area.

US30 – Wednesday’s indications from the Fed proceedings did not spare the Dow Jones from a strong bearish push. The 35,500 became a wall and from there the prices reached our key support 35,755-35,701, from where a strong rebound started in the last session of the week, recovering the weekly support 35,056-35,152.

The weekly trend will turn bullish only with the recovery and maintenance of 35,312-35,254 area. Next resistance in 35,513 area. Above it we will look for 35,600 and then 36,000 points, which are new historical highs.

If the price does not manage to go above the weekly support or to break the 35,513 area, we will have bearish indications and possibility of decreasing highs on a weekly basis. Although 35,056-35,152 is a good support, the key area is from 34,701 to 34,889. This is where a lot of volume has been concentrated.

The bullish reversal of four weeks ago was very violent. From 34,535 onwards we have a lot of support up to the zone of 33,980-33,725, given the very high amount of buying of value stocks made by investors. We signal the 34,295-34,267 area and the same 33,980-33,725 for buying, the latter key support for the medium-term uptrend.

Some important bearish signals might come if the price goes below 33,686. Key level at 33,608. Following support at 33,215 and confirmed 32,956. The latter should be monitored as its loss could lead to fast and new bearish pressures.

Buying opportunities can be found on the 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 witness stronger bearish pressures, with possible weekly trend changes.

 

IMPORTANT NOTE: The Jackson Hole meeting is very important, as Powell’s statements with the inflation data might generate strong volatility on Friday.  As we said last week, we are in a very weak situation and any buying should be avoided if the falls are of high intensity or we do not have solid support. Friday’s bullish turn was quite strong, but needs to be confirmed.

Also this week it is wise to keep notes of Monday’s openings and Friday’s closings to confirm or deny the current trend. Avoid overtrading and watch out for volatility imparted by HFTs.  To mark eventual gaps that can appear also during the week, with particular attention to those of Monday.  If any falls at the beginning of the week are quickly recovered, there will be no problems in the uptrend. Conversely, favour shorts.

Good trading!

 

Research provided by Giancarlo Prisco

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