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Andreas Zanin
Analysis | October 25, 2021

DAX30 & DOW JONES: weekly analysis 25 – 29 OCT

Market movers

The week ended positively for equity markets (some indices reached new all-time highs) thanks to the easing of tensions over the crisis in the Chinese real estate sector and positive US quarterly reports. Among the best performing assets for the week were gold, silver and the rally in the Australian dollar. Bitcoin has seen a slight corrective phase but nothing of concern for now.

The Turkish lira plummeted after the central bank’s surprise decision to cut rates amid high inflation. The weekly performance of aluminium was also poor.

Next week will be full of macroeconomic events. The most important one will be the ECB Governing Council meeting to understand the next steps of the Frankfurt-based institution to control inflationary pressures. Two other central banks will be meeting, namely the Bank of Japan and the Bank of Canada. Among the macroeconomic data, particular attention will be paid to estimates for third quarter GDP and inflation in both Europe and the US. Finally, the most anticipated quarterly reports of the coming week: Facebook, Microsoft, Google, Apple, Amazon.

 

Analysis of the week and scenarios for DAX and Dow Jones

As mentioned last week, the October cyclical window led to a powerful rebound. The S&P500 made new all-time highs at the 4,552 area, after breaking down 4,485, the area from which we expected a jump to new all-time highs. The 4,429-4,391 area represents the weekly support zone. We also remember that the loss of 4,300 would represent a clear bearish signal. The indices can push up until the next meeting of the FED in mid-December.

Also this week should start with a sideways phase, with downward pushes, to leave room for further rebounds until Friday’s close.

 

GRAPH 1

DE40 – The German index saw a violent V-shaped reversal on October 6th, leading to a continuous upward push this week until closing on Friday in the 15,600 point area. Purchases have been marked on each session, creating a series of new supports useful to re-enter in case of pullbacks.

Area 15,516-15,645, remains the area to break down on the upside. This week has seen a heavy sideways movement, without 15,645 being broken down for the bullish continuation. Above this level we are targeting the key resistance 15,755.  A recovery of this level offers the possibility of price acceleration up to the 15,855-15,910 area, where the weekly resistance is. Beware of these levels as the price can reverse at any time. Above 15,975 we have a chance of new historical highs.  Here it will be necessary to verify the strength of the rise, otherwise we may see new declines. Above 15,975 we will target 16,014 and then 16,200, in extension 16,500.

The support in the 15,363 area has worked very well. The price has only touched this level so it remains, together with 15,241, useful for purchases. Below this last area the downward pressure can return with vigor. The key support zone 15,119-15,043 is confirmed. The zone of 15,000 points remains the annual support. We are always watching 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.

As last week, if by next Friday the prices will remain above 15,645, the door will open for a new uptrend. Below 15,241, on the other hand, the weekly trend can turn downwards again.

GRAPH 2

US30 – The start of the quarterly reports and the return of buying in the equity markets led to a powerful rebound of the Dow Jones index since mid-October.

As we wrote last week, the price needed to hold 35,197 to continue its bullish run. The price, after a slightly bearish Monday, literally flew session after session, until it closed the week above the second bullish annual target in the 35,600 area. The 36,000 are now at the doorstep, unless there is a sensational reversal of the stock market.

35,056-35,105 weekly support area. Intermediate support in 35400 area. The 35730 may lead to some bearish pressure, useful to look for previous supports to return with purchases.

We monitor the support in the 34,871 area, below which some bearish pressure might appear. However, the uptrend is strong and only the loss of the 34,372 area can open new bearish pressures.

The 34,015 remains a key area at 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 upward pressure continues, with slight jolts and low volumes, so it is considered a healthy trend.  The quarterly reports on the FAANG may bring some volatility, so it will be good to watch the weekly supports, as the trend may see strong upward reversals or strong downward accelerations. The sentiment can change abruptly.

If last week’s supports are maintained, we can continue looking for buying opportunities. An additional 10% upward movement is widely possible in the coming weeks.

Also this week it is wise to note Monday’s openings and Friday’s closings to confirm or deny the current trend. Avoid overtrading and watch out for volatility imparted by HFTs.  Mark any gaps that may appear during the week, with particular attention to those of Monday.

 

 

Research provided by Giancarlo Prisco

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