Market movers
Last week ended with volatility, characterised by very rapid movements within a very narrow daily range that does not, for the moment, give rise to excessive concerns.
The ECB has decided to confirm the very accommodating orientation of its monetary policy, in line with investors’ expectations. The next meeting in June may foreshadow future moves by the Central Bank.
Although Friday’s close was positive, negative sentiment remained due to Biden’s announcement to raise taxes on capital gains.
Despite the uncertainty, the presence of fiscal and monetary stimulus plans may continue to support the stock markets. Even in the event of a sharp reversal, it would be a physiological decline that would lead to new purchases. If the fiscal and technical elements weigh in, the strength of the best US companies will not be lost and they will continue to attract new money flows.
On the downside, investors would return to buying for the following reasons; valuations would be more attractive, the tax risk would be discounted and the focus would shift to macro growth.
This week will see the publication of the quarterly reports of the most traded companies. Tesla, will be followed by Apple, Amazon, Facebook, Microsoft and Google.
The Federal Reserve meeting on Wednesday evening should be closely watched. While we do not expect any major surprises, the market could move with some strength if Powell provides guidance on the Fed’s next strategies.
Germany will publish the IFO index, the unemployment rate and the Q1 GDP figure. In the U.S., we are reminded of the Q1 GDP, unemployment benefits and the University of Michigan’s consumer confidence index.
Analysis of the week and scenarios for the DAX and Dow Jones
Last week we indicated a decline in the first days of the week and a vigorous rise with possible new all-time highs in Friday’s close. The market made a powerful rebound despite not seeing any new historical highs.
The volatility remains quite high, with strong daily volumetric excursions that are not good for the bullish trend. Between Monday and Wednesday the market should give us indications on the trend of the next weeks. Every single session should be followed carefully.
DE30 – Last Monday’s opening the German index failed to maintain the 15,464 level which is necessary to continue the bullish momentum. On the contrary, the price strongly broke down the support zone 15,424-15,356 clearing not only the weekly support in the area 15.269 but also 15.119.
From here the prices made a strong accumulation, holding on the support and closing the week around the 15,269 area.
From Monday on, the DAX should hold at least above 13,356, the highs of the pullback from the lows, in order to find bullish strength again.
However, it is only above 15,464 that the bullish trend will regain strength. However, it will have to hold above this area because the sellers have been pressing strongly.
So the zone 15,356-15,423 acts as an intermediate resistance. If it’s not knocked down, it will continue to offer short possibilities. Above 15,464, the second weekly target of zone 15,665 will be within reach. We add a further target around 15,755 area. We feel the real target of the DAX is to reach the 16,000-16,200 area.
The first weekly support can be identified in a wide area: 15,119-15,017-14,981. This happens because the price has created much bigger support zones where we will continue to see ups and downs. Below 15,119 and within range 15,017-14,981, we should keep in mind the possibility of quick corrections. The target is the intermediate support 14,918 (former resistance) and then the zone created a fortnight ago 14,804-14,842. This last area is pivotal on a weekly level and to avoid a short term bearish reversal.
Important support levels are at 14,744 and 14,687. If these levels are lost, there may be reason to expect fast declines towards the key area created last week 14,600-14,545.
Further support levels are around 14,492-14,465 and then near 14,391. The weekly key level is placed in the 14,400 area. The loss of this level could lead to lasting declines.
The 14,301 area remains particularly important. A loss of this level together with 14,231 might trigger a quick fall to buy zones 14,144-14,096 and 14,003-13,974 seen last on Monday the 8th. Conversely, if zone 14,301-14,231 sees an upward turn, it could be the weekly low and offer excellent buying opportunities.
It’s very important for area 13,977-13,877 to hold as it is on a weekly level. The key monthly support remains in the 13,821 area. As long as it is not lost, risks of further declines are likely to be denied. Otherwise, the maintenance of the support will favour bullish phases for the German index.
If the price returns below 13,750 without a quick reversal, it may target 13,650 again and from there onwards to an important support in area 13,620-13,657. If surpassed, the next downward extension may be 13,373-13,289. These areas represent excellent opportunities for long re-entries provided that US indices do not show bearish excesses and that volumes are not too high. Otherwise, shorts may be the preferred trade.
If the 13,373-13,289 area is breached, there are no obstacles until the yearly supports 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 12,723-12,635 is the first relevant support and we cannot exclude the reaching it in one or two trading sessions. This area is a key support zone, a clear break to the downside of 12,500 points would open the way to further falls.
Key supports remain at 12,155-12,237 and 11,766; below these levels we should expect a trend change. After the possible loss of 11,542, the first targets are in the 11,214-11,095 area. From here, it is possible to extend down to 10,766-10,480, last touched on the 15th of May 2020.
US30 – prices closed higher on Friday, rebounding from losses in previous sessions as investors weighed the impact of a planned tax increase on capital gains, with many pointing to reasons why such a policy alone is unlikely to threaten a rally in equities.
In last week’s opening the US index never managed to break through 34,161, quickly touching 33,725 but not going any higher.
In spite of the excellent volatility, the price was stuck for the whole week in the range 34,161-33,725.
If the price comes back above 34,161, it is very likely that it will reach 34,351. The next target will be looking for 34,500-34,800 area. 35,000 points are still possible.
Intermediate support remains within range 34,015-33,976. It is likely that the prices will fall below this area, if the price breaks through it. However, 33,725 is a strong support that is difficult to touch without an increase in volatility.
The 33,585-33,427 area is a very strong support. Even if the price may reach it fast, it is not likely to break it to the downside at the first attempt unless the market sentiment changes significantly together with a sudden increase of the Vix.
Weekly support remains at 33,314 points. Intermediate support for buyers can be found in the 33,225-33,146 area. We need to monitor 32,956 because if this is lost, we could see bearish pressures.
Buying support levels can be 32,761-32,638 and 32,308. The strong buying zone created three weeks ago in the 32,308-32,137 area is confirmed. Only below it we could see stronger bearish pressures, with possible weekly trend changes.
The old resistance zones of last week would be the targets below 32,137-31,741-31,986 and 31,521. These levels may be optimal for buying opportunities.
Below area 31,234-31,181, we might see new bearish pressures. However, a break to the downside of the support 30,986-30,922 might be necessary. As we indicated, this move has led to a nice V-reversal which remains very important at the weekly level.
Below 30,986-30,922, the game is played on the support level at 30,648. If that is lost, we will look for 30,476 and vital area 30,098-30,260. The loss of the latter can signal new strength in the bearish trend. If held, it could be a perfect area for new upward reversals.
The 29,618 level will continue to determine the trend of the index in the coming weeks. Below it, we could see a strong bearish movement.
We remind you that only the loss of the weekly support 28,880-29,119 could put in crisis the annual bullish trend. Below this level, we have intermediate support around 28,319-28,051. A close below 27,762-27,625 would undermine the current bullish scenario.
Area 27,019-26,650 is vital as it has been successfully tested and has led to strong bullishness. Sellers will come back strongly if the 26,110 level is broken down. The decline may extend to the main low seen on the 30th of July at 25,777. This is a potential trigger point for a new downward acceleration with three potential main lower targets at 25,399, 25,149 and 24680. Very important annual support remains at 24,309.
IMPORTANT NOTE: Volatility has increased as well as volumes. There’s abundance of intraday trading opportunities, however pay close attention to the FED conference and the global macro agenda of the week. Keep the economic calendar within reach to avoid unpleasant losses.
Have a good trading week!
Research provided by Giancarlo Prisco
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