DAX30 & DOW JONES: weekly analysis 24 – 28 MAY

Market movers

Last week the market continued to see strong declines due to the crypto sell-off and the Fed minutes. The first catalyst impacted the portfolio’s risk and led to forced and unwanted selling. The second, on the other hand, showed that many members of the Fed are keen to begin the tapering process despite Monday’s soothing statements.

The simultaneous presence of a portfolio de-risking scenario and a more hawkish Fed meant that bonds and equities were moving in the same direction. Both asset classes fell as the market became more concerned about an inflationary scenario.

For the reasons listed above, this positive correlation could be maintained for several weeks. However, further bearish movements of the cryptos and rate hikes on the US yield curve should be watched closely. They may lead to renewed selling on bonds and equities.

The coming week will be marked by a lot of macroeconomic data and central banker interventions. The spotlight will mainly be on the second estimate of US Q1 GDP and April inflation in the US. Friday’s data may be crucial in understanding the Fed’s next moves.

In Germany, Q1 GDP and the IFO index will be published on Tuesday.

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

Since the beginning of April, the markets continue to alternate their direction. News and macro data have been interpreted to create continued pressure but eventually prices kept a horizontal range from which we cannot see a clear directionality.

The concerns for the future are always the same, i.e. whether or not current prices are sustainable and what effect inflation might have on them.

Last week we saw more strength in the NASDAQ and the DAX, the Dow Jones moved sideways and the S&P500 is still unable to take a clear direction. Also, after a turbulent start, the rise on Thursday and Friday brought the indices back up, albeit without new all-time highs, except for the DAX.

We are at the end of the month and it will not be an easy week. Even though the weekly trend shows bullish strength, we should be cautious and follow the weekly supports and resistances to understand the market direction.

DE30 – At the beginning of the week, the Dax reached new all-time highs after breaking to the resistance 15,464. The rise was short-lived as a quick reversal led prices to a vertical collapse towards the 14,918-14,842 weekly support area. On Friday’s close, however, the German index ended the week near to the 15,464 resistance.

It’s very likely to record further new highs. Above 15,464-15,501 weekly highs, new targets towards should be 15,665-15,755 with possible extensions to 15,900. The real target for the DAX is to reach 16,000-16,200 area.

Intermediate supports at 15,423-15,400 and 15,311-15,300. Below 15,384, there is a possibility of bearish acceleration. Weekly support area remains 15,269-15,209. Key area for maintaining bullish strength 15,209 confirmed. All these levels are optimal in the search for buying points.

Supports in 15,119-15,062-15,043 area are still weak after last week’s rise. Below them, a vertical fall would be interpreted as a probable new decline. 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 – The Dow Jones saw renewed declines this week which were smaller than last weeks. Solid surveys of US factory and service activity boosted the Dow blue chip for a second session and lifted sentiment at the end of a choppy trading week.

Prices tried to break through the 33,585 area but quickly retreated on Wednesday evening and then returned to the upside. New uptrends are possible if the price manages to break through last week’s resistance at 34,445. The 34,223 level should be watched. The last obstacle towards new highs is the resistance in the area 34,717-34,846. If we break to the upside, we can target the 35,000 level. Next target is 35,500 and it will be possible to go well beyond.

The area 34,015 – 33,976 needs to hold in order not to change the weekly trend. Intermediate supports at 34,307 and 34,134.

Key supports for the bullish trend at 33,873 and 33,585. If this level is lost, the bearish pressure will return and with it the presence of a bear market. First target should be 32,956.

IMPORTANT NOTE: Despite the dips at the beginning of the week, the bullish trend is still strong. We can expect a nervous and volatile market. This week, it is wise take notes of Monday’s openings and Friday’s closings to confirm or deny the trend. Avoid overtrading and watch out for volatility imparted by HFTs.

Have a good trading week!

Research provided by Giancarlo Prisco

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