DAX30 & DOW JONES: weekly analysis 27 SEP – 1 OCT

Market movers

Last week was very eventful on the stock market, especially after Powell’s speech at the FOMC meeting; despite the announcement of a monetary cut, Powell managed to give confidence to the markets which turned upwards, suggesting the constant presence of the FED.

The new week begins with the results of the elections in Germany, crucial to understand Angela Merkel’s successor. A lot of macroeconomic data in the coming week could move the markets considerably. Among the most important figures are certainly those relating to inflation, the trend of the consumer price index in the Euro Zone and the core PCE index (personal consumption expenditures excluding energy and food) in the United States. It will also be necessary to follow developments in the collapse of property development giant Evergrande.

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

Thanks to the Fed, the weekly trend saw an upward reversal from Wednesday onwards; however, there is not yet a high probability that the worst is behind us and indeed, the danger of further market declines is still in place. We should remain vigilant for at least another two weeks, as a correction of 10% or more is still possible.

The next two key supports of the S&P500 index are 4,340 and 4,204. The first one managed to contain the fall and now we will check on the maintenance of the 4,384. The Nasdaq recovered the 15,274 and might see a new bullish push.

Given the fragility of the market, it is wise to observe the price trend of this week very carefully before making a more reliable scenario analysis.

DE40 – The German index saw a rejection of the strong annual support 15,119-15,043 on Monday. The price pushed through on Friday, touching the key level 15,755 and from there falling to last week’s previous resistance 15,516-15,464.

Only with a recovery of 15,755 we will have a chance to accelerate the price to the area 15,855-15,910, where the weekly resistance is. Beware of these levels because 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.

On Friday’s close the DAX has given us many indications. If the price manages to position itself above 15,645 points we will have the possibility of strong upward accelerations, up to the level 15,755 indicated above. The resistance zone is now a support at 15,465-15,516. We might see increasing purchases on the Dax this week, however the loss of 15,400 area might start a new selling process on the index.  The 15,332, 15,216-15,176 and 15,119-15,071-15,043 remain valid supports and are optimal entry levels for buying opportunities, so we can expect strong reversals on them.

The 15,000 points have seen a double minimum annual, so a break with prices in vertical would be interpreted as a change of trend downward. We always watch 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.

To conclude, if by next Friday prices remain above 15,755, the door opens to a new uptrend.

US30 – the US index saw a strong selling climax on a weekly basis and was fuelled by value-seeking buyers following the Federal Reserve’s stance on reducing monetary stimulus and raising interest rates.

The Dow recovered from 34,015 and 34,572, the level from which we saw a further rebound to last week’s key resistance 34,791-34,889. Above this area we may see further rebounds, with target resistance 35,056-35,152, which will determine whether or not we will return to a bullish relaxation. If these areas are not knocked down, we will return to the downtrend. We signal also the resistance 35,272 and then area 35,391-35,436. Very important, at weekly level, the recovery and maintenance of 35,182.

Only above 35,513, the price will look for 35,600 and then 36,000 points, or new all-time highs.

Below 34,535 we could see some relevant bearish pressure, which could bring the prices in the area 34,015-33,725. The volumes entered in the last three sessions have marked many supports, making it very difficult to see prices below this area for now.

New bearish strength could come if price goes below 33,608. Following support at 33,215 and confirmed 32,956. The latter should be monitored as its loss could lead to a strong reversal or change in trend.

Supports for buying at 32,761-32,638 and 32,308. The strong buying zone created weeks ago at 32308-32,137 is confirmed. Only below it we can see stronger bearish pressures.

IMPORTANT NOTE: The Fed led a strong turnaround in a few sessions. The bullish turn of last Wednesday should be verified this week, in order to discard false signals and see confirmed weekly supports. If that happens, we might see a new uptrend.

Also, this week and’ wise to note the openings of Monday’ and the closings of Friday, in order to have confirmation or denial of the trend in course. Avoid overtrading and keep an eye on the volatility imparted by HFTs.  Mark any gaps that may also appear during the week, with particular attention to those on Monday.  Bullish strength has returned with force; unless we see a general trend change, any pullback could be an excellent buying opportunity.

Happy trading!

Research provided by Giancarlo Prisco

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