DAX30 & DOW JONES: weekly analysis 31 MAY – 04 JUN
Market movers
The numerous interventions of the FED’s exponents at the beginning of last week have created a perfect bullish condition in which fiscal policies combined with accommodative monetary policies and economic recovery are married with a scenario of inflation under control. This scenario is the optimal one, at least until the central banks are forced to quickly revise their statements (monitoring every activity of the FED is mandatory).
Note how we have witnessed a contraction of volatility in all asset classes. This only confirms the ongoing bullish scenario. If the volatility of the bond segment falls, this benefits the risk profile of all balanced portfolios, leaving room to increase risk (also) on other assets, including equities.
Therefore, there has been a return of interest in small caps and SPACs, without forgetting the return of retailers who, in addition to crypto, have returned to buy their passions, such as AMC and Gamestop, which have returned very close to their highs of January this year.
Next week we will start the month with some very important data that will play a major role in the trend of stock prices. The most important figures will be the inflation in Europe, to show if there are inflationary pressures in the Old Continent and the non farm payrolls in the United States. The latter will be particularly important, given that the Federal Reserve is waiting for improvements on the employment front in order to begin the tapering process, i.e. the reduction of purchases of government bonds. Another event of particular interest is the meeting of the Reserve Bank of Australia, which could surprise markets by changing monetary strategies, as the New Zealand central bank did in part last week.
Also of note is the publication of unemployment figures in Germany on Tuesday and iSM data, unemployment claims and the second GDP reading on Tuesday and Thursday on the US side.
Analysis of the week and scenarios for DAX and Dow Jones
Despite the fears of a possible inflationary spiral, investors’ eyes remain focused on economic growth and upcoming macro data. The markets maintain their bullish strength even if in a context of low volatility. Rollovers in the third week of June should see indices with new highs.
This week we should again see a low early in the week and a high on Friday. It will be a good idea to monitor intraday trends for weekly supports to hold and offer us the possibility of a new bullish directional phase.
Monday the U.S. stock markets will be closed for Memorial Day.
DE30 – At the beginning of the week the German index reached new all-time highs, touching 15,600 area. Last Monday the resistance at 15,464 was knocked down in the European opening. This caused a new bullish push, even if very weak. The rest of the week we saw some weakness in the DAX, but it kept our weekly support at 15,384 area. The weekly close was quite bearish but lacks pressure and volatility so we should check the extremes of this 15,384-15,600 range this week.
Our target remains last week’s weekly realisation area at 15,656-15,755. There could be extensions in case of a bullish acceleration to 15,900 target level. The real target for DAX is to reach 16,000-16,200 area. The price needs to break to the downside and maintain the new resistance area 15,454-15,578 in order to continue upwards.
The support area 15,423-15,384 is confirmed. Below this there is a possibility of bearish acceleration. Weekly support is seen at 15,269-15,209. Key area for maintaining the bullish strength is confirmed at 15,209. All these are optimal long entry levels.
Supports in the area 15,119-15,062-15,043 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 first target in the area 14,600-14,441.
US30 – The Dow jones was looking solid all week, managing to break the weekly resistance 34,445 and to close the week above it. Investors shrugged off some inflationary fears.
Dow component Salesforce.com provided the biggest boost for the blue-chip average, adding 5.43% after raising its full-year revenue and profit forecast, helped by increased demand for its cloud-based software during the pandemic.
The industrial index never touched the 34,000-point area last week, hovering in a range of just over 200 points for the first four weekly sessions. Thursday’s break of 34,445 took price towards 34,657, closing the week just below that level.
The last obstacle towards new highs is the resistance in the 34,717-34,846 area. In case of a break-down, 35,000 points will be easily reached. Next target is 35,500. And it will be possible to go well beyond.
New weekly support placed in the area 34,445-34,395, essential to maintain the current bullish trend. Below this level we will keep an eye to the critical level at 34,223.
Fundamental support zone should be at 34,015 – 33,976 points while the intermediate supports are seen at 34,307 and 34,134.
We can consider the key supports for the bullish trend at 33,873 and 33,585. If these are lost, the bearish pressure will come back strongly and could signal the presence of a bear market with first target at 32,956.
IMPORTANT NOTE: The bullish trend is still intact. We expected more volatility but this week it is wise to take notes the openings of Monday and the closings of Friday, to have confirmation or denial of the current trend. Avoid overtrading and watch out for volatility imprinted by HFT. Friday’s non farm payrolls could be the excuse for a new impulse or trend change.
Have a good trading week!
Research provided by Giancarlo Prisco
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