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Andreas Zanin
Analysis | June 28, 2021

DAX30 & DOW JONES: weekly analysis 28 JUN – 02 JUL

Market movers

Monday 21st saw a complete retracement of the losses which took place on Friday 18th.  We seem to have reverted back to “risk on” and purchases on value stocks have resumed. We are at the end of the semester and fund managers have to report to their clients so purchases are targeted in this sense. Moreover, next Sunday is Independence Day in the USA. Statistically, the market almost always arrives bullish to such occasions.

Stock markets are exhibiting a strong bullish trend but after the FED meeting, the risk of tapering is ever more present. The focus of the traders will determine trend according to the macro data and the FED statements.

The more emphasis will be placed on inflation risks, on its structural nature and on the need for the FED to intervene, the more we will see a pattern similar to that of Friday 18th.

On the contrary, the readings from Monday 21st will prevail if data on future inflation confirm the FED’s thesis that increases are only temporary and that inflation trend, although on the rise, is easily controllable.  Cyclical stocks might outperform and the market could continue to price in the ongoing recovery.

The conundrum is that the two scenarios are opposite and the choice of one or the other involves drastic choices in terms of asset allocation. This choice depends on very slight nuances in the reading of macro data or in the interpretation of FED releases.

This will make the markets more volatile than usual and days like Friday the 18th and Monday 21st, are likely to be expected in the future.

This week will feature several interesting macro data events. Above all, Non-Farm Payrolls will provide useful indications on the trend of the US job market for the month of June. These are important insights that could fuel new speculations on the next monetary policy choices of the FED. Investors will also be able to focus on the PMI indices of the manufacturing sector that should confirm the good health in Europe and the U.S.

In Europe, Tuesday’s flash inflation estimate for June will be under magnifying lens. It’ll be released first in Germany and then for the entire euro area on the following day. Data should show a continued acceleration in consumer prices, an element that can start to create some problems for the ECB.

Analysis of the week and scenarios for DAX and Dow Jones     

In a week that seemed a candidate to see vertical falls, the week’s close hints at another scenario. Barring a new bull trap, the stock markets could rise continuously for another month. Monday and Tuesday will add further to this observation. The weekly trend is bullish again even though some indices are lagging behind. We should see a slightly bearish start of the week and a close of Friday with new highs.

Volatility is low as well as the volumes which are barely present. It is an ultra-relaxed scenario but it will always be a good idea to monitor the intraday trends so that the current trend and any potential changes are clear.

DE30 – The German index showed a strong reversal to the upside last Monday creating a perfect selling climax. The 15,464 and 15,545 levels were broken through easily leading prices to test 15,661-15,707 area, last resistance before the weekly bullish trend change, on the same day. Price has oscillated between 15,464, now support, and 15,661 for the rest of the week. The trend of the week may be determined if one of the extremes breaks this range.

If this week, Dax breaks through the 15,661-15,707 area and maintains it, it can approach 15,755 and from here start a new path towards the historical highs. The first annual target is 15,900 points but the real goal is to reach 16,000-16,200 area. Price will have to maintain 15,755 in order to continue to rise.

Below 15,464, there is no relevant support until the 15,386-15,311-15,269 area.  Key area for maintaining the bullish strength is confirmed at 15,209 points. All these levels should be optimal entry points.

Supports in the area 15,119-15,062-15,043 are still weak after the rise of mid-May. Below them, a vertical fall would be interpreted as a probable new downtrend. 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 area 14,600-14,441.

US30 – The Dow Jones has recovered the entire slump from the previous week maintaining an evident bullish setup. The Fed’s stress tests paved the way for banks to raise dividends and buy back more shares, an activity that was suspended during the pandemic. Biden’s infrastructure deal gave additional reasons for the upside. Finally, weaker-than-expected inflation eased concerns about a sudden drop in stimulus from the Fed.

On Monday, the price recovered from the lows of the last week to straddle resistance 34,015-34,307. After a short accumulation, between Thursday and Friday, price started a strong acceleration reaching the intermediate resistance 34,395-34,570 at the close of Friday.

If the index will be able to break through the final resistance 34,717-34,846, we might return to 35,000 points and we could be able to aspire to new historical highs, especially 35,500-36,000 points.

The key weekly support is placed between 33,980 and 33,823. The area corresponds to last week’s resistance and the area has been well bought. However, only a significant increase of volatility and continuous vertical falls in price may lead to a possible change of the trend. The reason is related to the selling climax of last Monday where purchases clearly marked the trend.

Some bearish signals might arrive if the price goes below 33,686. Key level is seen at 33,608, following support at 33,215 and confirmed at 32,956. The latter should be monitored as its loss could lead to fast and new bearish pressures.

Supports for buying can be found at 32,761-32,638 and 32,308. The strong buying zone created weeks ago at 32,308-32,137 is confirmed. We can see stronger bearish pressures only below it with possible room for weekly trend changes.

The old resistance zones would be the bearish targets below 32,137: 31,741-31,986 and 31,521. The levels should be optimal buying opportunities.

 

IMPORTANT NOTE: The uptrend of this week was very strong and in such circumstances, the best strategy is to wait for pullbacks to re-enter the trend. However, volatility will not be such to see big falls, so the ideal is to look for entries after the prices will define a minimum in the accumulation zone.  Monitor the trend of the S&P500 index which will be an important mirror of the weekly trend. If it starts to push strongly for new all-time highs, we will see a new choral rise for all indices.

Even if there is the NFP on Friday, Independence Day holiday takes place on Sunday. It is likely to see a market with low volume and low volatility for the rest of the week.

Also, this week, it is wise to take note of Monday’s open and Friday’s close in order to confirm or deny the current trend. Avoid overtrading and watch out for volatility imprinted by HFT.  Mark any gaps that may appear during the week with particular attention to those of Monday.

Have a good trading week!

 

 

Research provided by Giancarlo Prisco

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