From a technical point of view, active participation in the market ends the week before Christmas, after which the following days should be characterised by low volumes and exchanges originating from algorithms only.
Everyone is wondering if the market will continue to rise. We must keep in mind many variables, such as the results of the FED and ECB meetings, the news about the first vaccine in the USA, the electoral situation and the positioning of the operators together with some aspects of technical analysis. While we cannot yet predict what the Central Banks will say, we can analyse the positioning of the operators and the level of momentum of the US stock market which we are seeing for the Christmas rally.
The American market is already in a situation of overbought and there is a high probability of a retracement in the coming weeks. There is a state of total relaxation which increases the sell-off risk. If the shorting commences, few market operators are covered. It will be particularly important to observe next week’s quote levels before the Fed meeting on 16th of December.
Europe will be the protagonist this week. The attention must be pointed towards the middle of the week: on December 10th and 11th, the European Council will discuss the Recovery Fund again. Also on Thursday the 10th, the European Central Bank will announce new monetary policy moves at a meeting where important measures are expected.
On the macro front, data on inflation and quarterly GDP are coming in with headlights once again pointed towards ZEW data on consumer confidence in December, expected on Tuesday.
Are the markets ready for the Christmas rally? It seems that there are no obstacles unless there are strong and sudden reversals. The trend is strongly bullish and from Friday’s closing levels we could see accelerations of 5% until December 16th.
DE30 – The DAX has reached our weekly range 13,411-497 on Monday halting around 13,450. The rest of the week led to a slow decline with daily closures lower than previous sessions. On Friday, the German index lifted the slope after reaching weekly lows below 13,200 without affecting our intermediate support around the 13,142 mark. The weekly close saw a Dax seek positioning above 12,300 without succeeding.
The opening on Monday 7th will be indicative of the possible trend of the week. If the price manages to stay above 13,362, it will be possible to see a new bullish re-launch with weekly targets around 13,447-472-497. Above 13,525, the target remains the February resistance near area 13,650-750. As such, we continue to hypothesize 14,000 points possibly before the FED meeting next week.
On the contrary, if the price should reach the 13,171 area and then the 13,142 support, the possibility of further retracements increase considerably.
Strong support remains around 13,104-13,090. This is the area that can open to rapid descents on a weekly basis. Remember also the 13,020 level; a consistent break of the zone could offer a strong correction down to zone 12,723-635. This is the monthly support zone and breaching 12,500 points would open the door to further falls.
Key support remains 12,155-12,237 and then 11,766 after which a trend change may begin to look likely. Below 11,542 the first targets are identifiable around 11,214-11,095 zone. From here, it may extend to 10,766-10,480, last touched on May 15th.
US30 – The Dow Jones continues its record-breaking run, with new historical highs on Friday. This is due to the better-than-expected economic data which reinforced sentiment ameliorating on the back of possible progress of negotiations on the next mega tax package.
This week’s price movements have shown us the strength of support in area 29,618. This area will be able to determine the trend of the index for the coming weeks. Resistance in area 30,098 was surpassed taking prices to area 30,165-225. This reinforces last week’s view of the price projection around area 30,715-31,000 points.
The 30,000 level remains a strong psychological support. If prices manage to stay below 30,041, we will have corrective movements that could lead to a week support testing the 29,618 level.
At present, only the loss of weekly support 28,880-29,119 could put the current trend into crisis in the short term. Below it, we have intermediate support 28,319-28,051. A closure below 27,762-625 would undermine the current bullish scenario.
Area 27,019-26,650 is the area not to be missed. This area has been successfully tested and has led to strong elevations. Sellers will return strongly if level 26,110 is brought down. The drop will extend to the main low of July 30th around 25,777. This is a potential trigger point for a new downward acceleration with three potential lower main targets at 25,399, 25,149 and 24,680. Annual support is particularly important at 24,309.
IMPORTANT NOTE – We enter the two most important weeks of the year. Volatility can suddenly increase and then keep the price in range. During events such as the ECB conference, beware of price bursts. It is advisable to operate on pullbacks and not on breakages in order to avoid any bearish or bullish traps.
Research provided by Giancarlo Prisco
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