DAX30 & DOW JONES: weekly analysis 4 – 8 OCT

Market movers

Last week ended on a negative note amid fears of a production freeze in the industrial sector, inflationary pressures, the energy crisis, problems in the US in getting Biden’s agenda through and questions over the debt ceiling. Among the best performing assets we highlight the volatility index. In a climate of great uncertainty over the future, buying on the VIX was very significant. Among the indices we note the performance of the Nasdaq100, which showed its worst decline since March 2020. The sell-off in technology and growth stocks was mainly linked to the rise in US Treasury yields.

Next week will be packed with macroeconomic data. The most important will be the US jobs report which will be published on Friday. Figures on non-farm payrolls, unemployment rate, labour force participation rate and wage growth could be decisive for the Federal Reserve’s next monetary policy decisions. In Europe, the PMI indices for the services sector will be of particular interest. Also of note are two central bank meetings: the RBA in Australia and the RBNZ in New Zealand.

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

Despite the rebound attempt, the bearish pressure is still strong on the weekly trend of the indices. We are now in a cyclical annual window, at the beginning of October, which will give us a decisive idea about the direction of the markets. September ended in line with statistical expectations, with strong corrective movements.

This downturn should be followed closely, to understand whether the event will be limited to a few weeks or will continue for several months, or even for the whole of 2022.

If there are no immediate V-turns, the equity markets are in for a correction of more than 10%. We are talking about seeing the 4,000 point SP.

The 4,340 has been maintained this week as well, but the chances of seeing 4,204, passing through the 4,280 and 4,240 levels, is still high.  Only a recovery on a weekly basis of 4,485 will bring a minimum of bullish relaxation.

The one that will start on Monday is a crucial week, as it will probably decide the trend for the whole month of October. Only a weekly close above the key resistances of the indices will guarantee a lasting uptrend.

DE40 – The German index has seen a violent and continuous fall since the beginning of the week, after breaking down the key support zone 15,516-15,464. Prices revisited the 15,000 point area for the third time since July, ending the week with another powerful rebound over the area.

The Dax has marked new levels in this fall; the price must absolutely not return below 15,284 and 15,119 in order to avoid new bearish pressures. A break-down and daily maintenance of the 15,464 level offers the possibility of a strong upward acceleration, with a target of the intermediate resistance 15,645. From here attack the key resistance 15,755.

A recovery of this last level offers the possibility of price acceleration up to the area 15,855-15,910, where the weekly resistance is. Beware of these levels as 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.

The 15,000 points have seen a triple annual minimum, so a break with prices vertically below them would be interpreted as a change of 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 14,600-14,441 area. Vice versa a rebound on these supports can start a reversal process to the upside.

To conclude, if by next Friday prices remain above 15645, the door opens for a new uptrend.

US30 – Political and economic uncertainty is weighing on the US indices; the Dow Jones suffered this week a disastrous fall of about 1,300 points from the resistance near 35,000 points, bouncing back strongly on Friday at the close of the week.

The Dow failed to stabilize above the resistance 34,841-34,889 of the last weeks, so without a recovery of this area it is unthinkable to expect a new uptrend.

Above this area we could see further rebounds, with a target of resistance 35,056-35,152, which will determine whether or not we can 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, i.e. new historical highs.

The rebound on Friday has seen prices close just below 34,395. A strong rebound cannot be ruled out if prices manage to stay above that level, with a target of 34,768, before the key resistance of 34,791-34,889.

The weekly support is located in the 34,015 area. Last week the price returned to the support area 33,980-33,725 until the key support 33,608.

Following support at 33,215 and confirmed 32,956. The latter should be monitored as its loss might 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 structural trend changes.

IMPORTANT NOTE: Despite the FED, political and economic uncertainty put pressure on the prices of indices, which continued their downward race. It is necessary to continuously monitor the supports and volatility, as the trend can see strong reversals to the upside or strong accelerations to the downside. We are in a very weak situation and any buying should be avoided if the declines are of high intensity.

Friday’s bullish turn has to be closely monitored, especially in Monday’s opening. Friday’s non-farm payrolls could lead to a strong turnaround.

Also this week it is wise to note Monday’s openings and Friday’s closings for confirmation or denial of the current trend. 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.  The bullish strength has been negated but everything can change in the coming days; unless we see a general change of trend, any pullback can still be an excellent buying opportunity if the indices rise together.

Happy trading!

Research provided by Giancarlo Prisco

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