Market movers
Last week has been anything but quiet in the world of finance. The sell-off of the Chinese stocks, particularly in the technology and education sectors, came after the government intervened in the governance of many companies undermining their competitiveness. Some of the systemic risks have been mitigated thanks to the Central Bank’s intervention. However, we continue to monitor the situation as it could lead to significant outflows towards the US and future buying opportunities of Chinese firms at discounted prices.
The FED meeting was very dovish. Powell wanted to give yet another message of reassurance. The Fed will continue to be accommodative until it is certain that the US economy has completely overcome the pitfalls of the Coronavirus. At that point, it will not hesitate to begin the tapering process while taking extra care in keeping operators updated in timely manner of any changes in monetary policy. We will see if it manages to handle rising inflation well.
Moving onto quarterly reports such as Amazon’s, which were a bit of a disappointment, in general we only saw some profit-taking as the FAANGs continue to rise quarter after quarter.
The coming week will present only a few significant events. In Europe, the forward-looking PMI indices for the manufacturing and services sectors will be closely watched. In the UK, particular attention will be paid to the Bank of England meeting. In the US, the most important event will take place at the end of the week when employment figures will be announced (unemployment rate, job creation, and labour force participation rate together wage growth). The non-manufacturing ISM will also be followed.
Analysis of the week and scenarios for the DAX and Dow Jones
Indices continue to push up despite the presence of strong pullbacks. If the weekly support levels hold, the uptrend may strengthen in the coming days. In particular, the S&P500 should not go below the 4,340-4,317 area, otherwise the trend may reverse on a weekly basis. The next 15 days may hold some surprises so watch out for any increase in volatility and volumetric increase because summer sell-offs are violent and fast.
Also, this week we expect to return to the scenario of lows between Monday and Tuesday with possibly further highs in Friday’s close. Unless we see strong sell offs with large daily hikes, no weekly trend change should be possible.
DE30 – Last Monday, the Dax index gradually moved away from the key resistance 15,681. A weekly trend above this level would have prompted a bullish turn. At the same time, weekly support 15,423-15,400 was respected during the week. Therefore, price remained trapped between these two extremes not offering any new directionality.
A good bullish signal might come above 15,631 provided that 15,681 is broken and held on a weekly basis. However, in order to have a chance of new all-time highs, price will have to surpass 15,794. The first annual target is in the 15,900 area whilst the most likely goal is to reach the 16,000-16,200 area.
Below 15,631 there are corrective possibilities up to the 15,578 area. An intermediate support is placed in the 15,545-15,501 area. The weekly support is located in the 15,423-15,400 area. Below it, the weekly trend turns bearish with supports placed at 15,332, 15,216-15,176, and 15,119-15,071-15,043. All these levels could be optimal if you are looking for buying opportunities.
Below 15,043 points, a vertical fall would be interpreted as a likely new downtrend. We always watch the volumetric support ranges at 15,017-14,981 and 14,842-14,804. The loss of these last two areas opens up to new lows with the first target in the 14,600-14,441 area.
US30 – Great laterality in the Dow Jones index this week, which despite new historical highs, failed to part in any direction. The 35,056 level remains key. Above this level, price will continue to seek new highs, in particular the 35,500-36,000 area, passing through the new 35,105-35,152 levels.
Below 35,056 the price respected this week support in the 34,889-34,841 area. The weekly support might be found again in 34,755-34,701 area. Below this, we might see a strong bearish acceleration but only in case of strong sell-offs and increased volatility.
The bullish reversal of last week was very sudden. From 34,535 onwards, we have a lot of support levels down to the 33,980-33,725 area. This is due to the high amount of value stocks bought by the investors. We highlight zones 34,295-34,267 and 33,980-33,725 as potential buying opportunities, the latter could be a key support for the medium-term uptrend.
Some important bearish signals might come if the price goes below 33,686. A key level can be found at 33,608. The following support levels are near 33,215 and 32,956. The latter should be monitored as its loss could lead to fast and new bearish pressures.
Buying supports could be seen at 32,761-32,638 and 32308. The strong buying zone created weeks ago at 32,308-32,137 is once again convincing. Only below this, may we witness stronger bearish pressures with possible weekly trend changes.
IMPORTANT NOTE: Markets this week showed low volatility and an upward trend. If there are no reversals with high volumes and high volatility, there is no possibility of a trend reversal. The ideal scenario is to wait for intraday pullbacks and look for long positions if the price does not break through the support levels. The target of the S&P500 index at 4,400 has been reached and if there are no reversals, we might reach the 4,500-4,600 area in the next few weeks.
As always, 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 on Monday. Non-farm payrolls can be the excuse for directional movements.
Have a good trading week!
Research provided by Giancarlo Prisco
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