Last week we saw some nervousness in the markets due to the expectation of Jerome Powell’s words at the Jackson Hole symposium on Friday afternoon. We have seen some profit-taking on the Thursday session, but in the end the stock exchanges closed the week positively, with new all-time highs for the Nasdaq100 and the S&P500 index.
Powell confirmed a “dovish” attitude and did not announce the start of the tapering process. Despite improvements in employment and strong inflationary pressures, it is still too early to reduce monetary stimulus and it will also be necessary to assess the effects of the delta variant on economic recovery and employment. Rates will not be touched, but there is a good chance of an announcement of reductions in monthly asset purchases at the meeting of the 22nd of September, to be made in October/November.
This week, investors are waiting for the data on non-farm payrolls on Friday afternoon, another significant piece of information to convince the Federal Reserve to change its monetary policy strategies. In Europe, the focus is on the release of the manufacturing and services PMIs, along with German inflation and unemployment.
Despite the nervousness prior to the Jackson Hole symposium, markets repeated the same script as always, buying Thursday’s retracement. But the reason is always the same: there is no alternative to equities and the risk premium continues to be in favour of them.
The S&P500 Index saw new all-time highs, going above 4,500 points; the trend is solid and only below 4,467 we can see a weekly correction. However, be mindful of any increase in volatility and volumetric increase, because the summer sell-offs are sharp and fast.
Next Friday’s close will be key. If we do not see strong sell-offs with large daily hikes, the corrective scenario will be negated once again. Pay close attention to the size of the retracement in the first few days of the week, should this happen. Barring any changes, we then expect a weekly close with further all-time highs.
DE30 – After a bullish start to the week, swinging on the weekly resistance 15,944-15,975, the German index turned downwards on Wednesday, knocking down the first support in the 15,825-15,822 area the following day and retesting the 15,717-15,690 support again. From here the Dax recovered strongly and closed in the 15,855 area. Basically, we are closed in a wide range determined last week, with the extremes placed at 15,975 and 15,690.
The Dax needs to move above 15,975 in order to have a chance of new highs. We could get there very quickly, but the resistances start in the 15,900 area and up to the 15,975 mentioned above. Here it will be necessary to verify the strength of the rise, otherwise we might see new declines. Above 15,975 we see a target at 16,014 and then 16,200, in extension 16,500.
Below 15,755 the DAX could reverse. The area to be monitored is that of 15,690 then 15,631. Fundamental the maintenance of these two supports otherwise we will go directly to the support clave in the area 15,501-15,545, under which the trend can start a new bearish path.
The key support zone remains in the 15,423-15,400 area. Below it we underline these levels 14,332, 15,216-15,176 and 15,119-15,071-15,043. All these levels are optimal entry points for buying opportunity.
Below 15,043 points 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 up to new lows, with the first target in the 14,600-14,441 area.
US30 – the U.S. index started the week with a good bullish push, reaching the 35,212-35,254 area, recovering the bullish trend, and trying on Friday’s close to break the key resistance 35,513. The price has been closed in a narrow range, between the support 32,254 and the resistance 35,313. Above it we will look for 35,600 and then 36,000 points, which are new all-time highs.
If the price does not manage to go above the weekly support or to break the 35,513, we will have bearish indications and the possibility of decreasing highs on a weekly basis. Although 35,056-35,152 is a good support, the key area is at 34,701 to 34,889. This is where a lot of volume has been concentrated.
The bullish reversal of five weeks ago was very sharp. From 34,535 onwards we have a lot of support until the zone of 33,980-33,725, given the very high amount of buying of value stocks made by investors. We signal the 34,295-34,267 area and the same 33,980-33,725 for buying opportunities, the latter is a key support for the medium-term uptrend.
Some important bearish signals might come if the price goes below 33,686. Key level at 33,608. Following support at 33,215 and confirmed 32,956. The latter should be monitored as its loss could lead to fast and new bearish pressures.
Buying supports at 32,761-32,638 and 32,308. The strong buying zone created weeks ago at 32,308-32,137 is confirmed. Only below it we can see stronger bearish pressures, with possible weekly trend changes.
IMPORTANT NOTE: Powell has clearly indicated the direction of the FED, however it is fair to remember that statistically after Jackson Hole the market has almost always seen a correction. So it is good to keep an eye on the supports and the volatility, as the trend can change at any time. As we said last week, we are in a very weak situation and any buying should be avoided if the falls are of high intensity or if we do not have solid supports. Friday’s bullish turn was quite strong, but it needs to be confirmed.
Also this week 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. To mark eventual gaps that can appear also during the week, with particular attention to those of Monday. If any falls at the beginning of the week are recovered quickly, there will be no problems in the uptrend. Conversely, favour shorts.
Research provided by Giancarlo Prisco
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