Market movers
Last Monday was characterised by strong selling on stocks whilst by Tuesday afternoon, investors had changed their minds and reverted back to buying significantly. If we remove the various “excuses” such as the delta variant of the covid, the reality is still that these movements are caused by position re-coverings. It all seems confusing but until price proves otherwise, investors believe in the continuation of the macro recovery, the gradual recovery of inflation and the continuation of an upward trend in corporate earnings growth.
This is why those lucky enough to watch the market from this perspective take advantage of the downturns to round up their positions or to use the additional liquidity that comes from new fund and management subscriptions.
This contrast of strategies and attitudes is reflected every day in sudden changes of direction, strategy and stock picking. Until tapering and inflation trigger a real panic or, better yet, a “serious” moment of changes in the market, the trend may remain bullish.
After an important week with the ECB meeting that changed its forward guidance following the publication of the strategy review, there is a lot of expectation for next week as well. On Wednesday evening, the Federal Reserve will meet to decide on monetary policy. There aren’t expectations for any major changes. However, the press conference of FED president Jerome Powell will be significant in terms of finding clues on the timing of the tapering process, i.e. the reduction of monetary stimulus (purchases of 120 billion dollars in Treasuries and Mortgage Backed Securities).
The week will also focus on corporate accounts with big names announcing their quarterly results (Tesla, Apple, Microsoft, Google, Facebook, and Amazon) and this is also one of the reasons why we have seen strong rises in these stocks.
Analysis of the week and scenarios for the DAX and Dow Jones
Despite the strong declines last week, we encouraged to watch out for possible changes in the bearish scenario on Monday and Tuesday which took place. On Tuesday afternoon, the rise was so sharp, in a V-shape, that it brought the weekly close to see new all-time highs for the S&P500 and the Nasdaq 100. There are therefore possibilities, if the bullish scenario is confirmed in the next two weeks, to see new uptrends throughout the summer.
This week we return to the scenario of lows between Monday and Tuesday and further highs at the close on Friday. Unless we see strong sell offs with wide daily hikes, no weekly trend change should be possible.
DE30 – Last Monday, the DAX index, after losing 15,464, saw a drop knocking down all the supports mentioned last week the 15,043 area. This level is recognised as the last bastion before a further and consistent collapse. After a brief accumulation, between Wednesday and Friday, price pushed vertically until it stopped at the weekly resistance level of 15,681. Movement above the weekly trend will return bullish.
However, in order to see new all-time highs, price may have to surpass 15,794. The first annual target is 15,900 area whilst the real goal is probably to reach 16,000-16,200 area.
Below 15,681, there are corrective possibilities up to the 15,578 area. An intermediate support is placed in the 15,530-15,501 area. The weekly support is located in the 15,423-15,400 area. Below it, the weekly trend turns bearish, with supports at 14,332, 15,216-15,176, and 15,119-15,071-15,043. All these levels are optimal to evaluate buying points.
A vertical fall below 15,043 would be interpreted as a likely new downtrend signal. We always watch the volumetric supports around 15,017-14,981 and 14,842-14,804. The loss of these last two areas opens up new lows with the first target around the 14,600-14,441 area.
US30 – Last Monday, the Dow Jones index made a strong break of 34,717. It literally flew to the key support area of 33,980-33,823. This area marked a V turn for prices as we had confirmed the strength of this area which had seen strong buying at the end of June. In Friday’s close, price touched 35,105, a level a few points away from new all-time highs.
The movement broke the resistance around 34,846-34,935. Should we stay above 35,056, the index might go in search of new all-time highs especially near the 35,500-36,000 area.
If we stay below 35,056, price may find a first support in 34,889-34,841 area. Weekly support should be near the 34,755-34,701 area. Below it, 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 sharp. From 34,535 onwards we have a lot of support up to the zone 33,980-33,725 given the buying volume of value stocks by investors. We highlight zones 34,295-34,267 and the same 33,980-33,725 for buying.
Some important bearish signals might come if the price goes below 33,686. The key level is at 33,608. The following support can be found at 33,215 and confirmed at 32,956. The latter should be monitored as its loss could lead to fast and new bearish pressures.
32,761-32,638 and 32,308 may be buying levels which coincide with supports. The strong buying zone created weeks ago at 32,308-32,137 is confirmed. Only below this can we envisage stronger bearish pressures with a possibility for weekly trend changes.
IMPORTANT NOTE: The markets have shown low volatility and a strong upward trend in the last two sessions. If there are no reversals with high volumes and high volatility, there is no chance of a trend reversal. The ideal is to wait for intraday pullbacks and look for long positions, if the prices do not break through the indicated supports. The target of the S&P500 Index, 4,400, has been reached and if there are no reversals, we might reach the 4,500-4,600 area in the coming weeks.
Research provided by Giancarlo Prisco
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