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Andreas Zanin
Analysis | January 26, 2021

DAX30 & DOW JONES: weekly analysis 25 – 29 JAN

Market movers

On Wednesday, the election of a new US president was marked by a series of new records on Wall Street. In November, the largest stock index, the S&P500, gained almost 11%. In December it rose 3.7% and as of today the January gain is 2.6%.

At the time of Trump’s arrival, Wall Street had been in an uptrend for almost 8 years. Biden, like Trump, starts with a stock market at all-time highs. The basis for a continuation of the uptrends is there for the coming months. However, given the policies that Biden wants to implement, the year may not end on a bullish note.

After the European Central Bank conference, where we did not get any significant indications of a more expansionary monetary policy review, all eyes will be on the Federal Reserve meeting on Wednesday evening next week.

More data will arrive from Germany during the week; IFO index on Monday which measures German business confidence in January whilst on Wednesday the Gfk report on German consumer sentiment in February will be published.

The quarterly GDP of the US and Germany will also be released on Thursday and Friday.

 

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

Despite last week’s bearish signal, the market in tandem with swearing in of Joe Biden, commenced a noticeable bullish movement which is not reflected with the same strength across all indices. The markets seem to remain in a lateral bearish phase since the beginning of the year. This means that, apart from the long trend that remains bullish, these retracements can remain and drive the prices up at any time. The confirmation of a short reversal requires precise confirmations on the multiday. Therefore, better to follow the key areas and monitor day after day to have the necessary confirmations for an explosion of momentum.

DE30 – Despite the bearish close on Friday, last week saw a strong rally for the German index. Holding 13,752 on Monday led to a double test of the price of the 13,946-13,988 area during the week. The price was rejected twice in a row resulting in a simple pullback. The previous report correctly foreshadowed this behaviour.

Further rallies will only be possible with daily closings above the resistance area 13,946-13,988. From here on, we expect 14,072 to be the gatekeeper which if breeched may lead to new all-time highs. First targets are at around 14,231 and 14,465.

Friday’s 13,887-13,841 area, previously thought of as weekly support, was surpassed with considerable momentum. The loss of this area saw the subsequent test of support at 13,752, from which a powerful bounce began for the entire session.

This week, a positioning of the price below 13,752 would perhaps lead to a testing of 13,650 and then the monthly support 13,551-13,480, with further slides to 13,373. If the price stays above the above mentioned 13,897, it is possible that the Dax will exhibit a more bullish mood. On Monday, the possible presence of a gap will help to understand which possible direction the price will have for the rest of the week.

In case the price continues falling below 13,373, we remind you support area at around 13,320-13,300. Below this level there is nothing but the annual support levels last 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 12,723-635 is the first relevant support and we cannot exclude the attainment of this area in one or two trading sessions. We also remind you that this area is a key support zone; a consistent breaking of 12,500 mark would open the door to further falls.

Key support levels are at 12,155-12,237 and 11,766. Anything further and we should expect a clear change in the trend. After 11,542 the first targets are identifiable around 11,214-11,095. Below this, we may even see downward movements to 10,766-10,480, last seen May 15th.

US30 – After celebrating the arrival of the new president, the Dow Jones managed to reach new all-time highs, without however maintaining them with conviction and closing the week slightly on the negative.

The 30,715-30,648 area worked perfectly as a weekly support leading the prices to break down the 31,181 resistance after having recovered the 30,922.

To continue to the upside, this week the price needs to recover and break the 31,181-31,234 area. First targets are 31,521 and 31,833, with likely extensions to 32,309.

Similarly, the strong break of 30,715-30,648 may signal the resumption of the bearish trend.

Ultimately, the break of these two extremes could result in a strong trend.

The weekly trend will remain bullish if support 30,232-30,098 is not broken.

A sustained movement below 30,098 will indicate the presence of sellers. The first target is 29,964 followed by 29,820. If 29,820 fails as support, 29,751 will come into the sights of sellers. From here, possible slides to key support level around 29,618.

Level 29,618 will continue to determine the trend of the index in the coming weeks.

In our opinion, only the loss of weekly support 28,880-29,119 could undermine the current trend. Below it, we have intermediate support around 28,319-28,051. A close below 27,762-27,625 would undermine the current bullish scenario.

The 27,019-26,650 area is of paramount importance. 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 of July 30th at 25,777, a potential trigger point for a new downward acceleration with three potential main lower targets at 25,399, 25,149 and 24,680. Annual support at 24,309 is also extremely important.

IMPORTANT NOTE – the FED event could determine the market trend in the coming weeks, although during Powell’s conference the markets should remain relatively still. We find it optimal to check on the contribution of the event in respect to the performance of the US indices on a weekly level.

 

 

Análisis proporcionado por Giancarlo Prisco

Los datos proporcionados contienen información adicional, previsiones, análisis y exámenes de los mercados publicados en el sitio web de Key to Markets.

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