DAX40 & DOW JONES: weekly analysis 27th June – 01st July

Market movers

US stock markets rebounded well after several weeks of selling. Slightly up week for European markets still tense due to several factors (details on the anti-spread shield, reduced gas supplies from Russia, uncertainty about the ECB’s next moves).

Next week is full of interesting macroeconomic data. The most significant is the one on US inflation. The core PCE index is the primary inflation measure used by the Federal Reserve for its monetary policy decisions. Other meaningful macro data will be the PMI indices on the manufacturing sector, durable goods orders and 1Q GDP in the US.

Analysis of the week and scenarios for DAX and Dow Jones

Friday’s close confirmed the self-modification of the scenario on Wednesday; the US indices closed the gap down on Monday 13 (the Nasdaq went well beyond, touching weekly reversal levels).

After six months of waiting, the scenario analysis presented in January 2022 (decline until June, recovery and return to the year’s highs by December 2022) was faithfully followed by the equity markets.

As the first bullish clue has formed in the equity markets, our focus will remain on the 5 July date, where the annual setup of the maximum expected bearish extension is combined. From here on, we will see if the bulls will regain control of the situation for the rest of the year. Those who follow me know that, in my view, this could be the last downturn of the year, confirming the late June-early July time frame as the turning point. The macro problems remain as well as the FED’s aggressive stance, so the market equilibrium remains very fragile. We will proceed, as always, in stages.

If the equity markets do not reverse to the upside by 5 July, this drop could continue with truly worrying effects until October this year and then until March 2023. In the best-case scenario, a further 20 per cent may need to be added from current levels (for the S&P500 index, this means seeing the 3200-2800 area).

The S&P500 index, confirming the strength of the previous week’s supports 3676-3647, began to push upwards slowly but inevitably, creating a rising low above the previous day.

On Friday, prices filled the 13 June gap, closing in the 3899-3934 area, confirming the possibility of a weekly reversal.

We will monitor new supports in the 3882-887, 3800-3776 and 3755 areas for possible pullbacks to spot good trading opportunities. However, considering supports in the 3676-3647 area, a reversal of the weekly trend is possible at the break of the 3700 area if prices accelerate downwards again.

In the event of new collapses, we will add 3485 to 3576-3555 and see if the latter two levels can stop the bearish direction of the markets, at least in the medium term. Should we go further, 3200 could be the target, sought after by funds, investors and traders from halfway around the world.

Confirmed resistance above the gap on Monday, 13 June, in the 3899-3934 area. A recovery of this area with gap closure on a weekly basis would offer a recovery signal.

Prices would be unimpeded up to our resistance 4090-4116. Resistance 4168-162 remains.

Intermediate resistances 4073-4057, 4008-4019 and 3949. These areas will have to be studied if prices touch, to check for possible long turns or new short possibilities.

The goal remains the breakout of the resistance located in the 4200 area from where prices could stretch directly towards the critical 4285-4303 area, whose recovery will guarantee a bullish reversal on a weekly basis. Watch out for the recovery of 4168-162, which could give the first signal of upward thrust.

4313-4339, 4396, 4415-4451, and 4480 are some of the other resistances.

The resistance levels of 4506 and 4554 must be broken to reverse the slump that began in April. The 4580-4590 area must be conquered to break through the monthly obstacle set in the 4613 area.

If the weekly close above 4613 is confirmed on a monthly basis, the yearly trend will be reversed; the following objectives are 4717 and 4780.

How to move? The week could be bullish. Low on Monday and then retracement between Wednesday and Thursday. Friday should be the day of the weekly high. It is probably too early to say that the downtrend is over; therefore, we will be watching for any negative sessions and the touch of support levels to understand the direction of prices.

DE40 – European uncertainty puts pressure on the DAX. On Monday and Tuesday, the index pushed upwards, reaching our intermediate resistance of 13373-13475. From here, a substantial drop started, touching our 12860 support, then closing the week at 13213 following the rise of the US indices.

We place the weekly support in the 13115 area. In general, the 13085-160 area is good support. A retest of prices in this area could offer long pullback entries.

The second area to watch for is the 13027-12957-12891 area due to the solid volumetric entries that caused the bullish push in the week’s final part. If we don’t break down this area strongly, there could be few chances to see new bearish cues unless we see some upward spikes, which might offer the possibility to open some shorts with tight stops.

Below 12860, we will look for the critical support in the 12700 area, an area that proved its strength with a strong pullback and that remains vital to avoid new yearly lows. Confirmed the 12500-435 area as annual support. Extensions to 12155 and 11766.

On the upside, the Dax will try to reach area 13283-316, a strong resistance area, and then again the weekly resistance area 13373-13475.

The 13556 area is confirmed. From here, it could lead to a stretch towards the Monday 13 June gap area. With the resistance peak in the 13721 area.

The resistance 13762-13842 is confirmed. Only above it there will be chances to see more lasting recoveries.

Subsequent resistances in the area 14003 and 14209. The following areas are dense with volume walls, so it is fair to say that if 14347 and 14440 are not recovered, the bearish pressure will still be intense. It is crucial then to reiterate the strength of 14592-545, the only area that could give an actual bullish signal if maintained on a weekly basis.

Instead, the remaining levels should be seen as control areas within the marked areas to have short pullbacks possibly.

Monthly resistance in the 14810-899 area is confirmed.

Recovery of the 15261 area first and 15380 could offer a bullish cue up to the 15570 resistance, where we will check the possibility of a new stretch to the weekly resistance 15665.

An intermediate resistance is around the 15810 mark, and new bullish strength could be found above 15944. Finally, a break of resistance 16079-16136 would offer the possibility of seeing key resistance 16230, from which to target the 16300-16500 area.

If by next Friday prices remain above 13556, there could be a chance for a bullish recovery; below 12957, on the other hand, the weekly trend may continue to push forcefully downwards.

US30 – The Dow Jones index recovered from last week’s lows, closing in the week’s last session the Monday 13 gap and touching our weekly reversal level in the 31546 area.

New support in the 31378 area, which, if lost, could offer quick retracements. Should we lose 31266, prices could attack 31115 and 30900. We will have solid volumetric support from here, especially in the 30742-624 area, where we identify the weekly support 30672. This must not be lost to avoid new bearish lunges.

Confirmed the last support zone in the 30334-224-122 area, the last defence before new falls.

Below 29823, confirmed at the beginning of the week, chances to see new lows; the price could go for extension 29119 if it loses 29618; going beyond even this level, there is a chance of a strong rebound. Possible extensions to 28684, 28319 and 28051.

This week, a recovery of 31192-31643 could provide renewed bullish strength. As long as we do not see this recovery, the best we can hope for is the beginning of an accumulation phase.

If prices remain above 31785, there would be no particular resistance until 32712-32956, with an intermediate zone in 32219-288. These areas should be monitored, as they could offer significant longs. We will, however, keep them in mind for possible short entries in pullbacks on a weekly basis.

Our monthly attention level will be 32834. Above it, prices may stretch to 33100-33314, from which we may begin to move towards our resistance of 33509-779. The main aim is to go back to the levels seen at the start of May in the 34134 area, from where a more persistent reversal can start.

35157-34850, 34437, and 34237 resistances are confirmed.

Prices over 35599-963 on a monthly basis would signal a new positive directionality; 35157-34850 and 35614 are the levels where prices might revert to the upside or push back down. This requires that we keep a close eye on pricing at these levels.

If prices break through and maintain 36529, they may be able to reach the 37000 area if they break past the last barrier at 36786. Above 36236, we see the potential for more bullish volumetric thrusts.

IMPORTANT NOTE: The recovery is here, but we must remain vigilant when it retreats. We will go very fast if there are rising lows or selling climaxes. Conversely, we will see new annual lows. Be patient because trends can take hours to develop.

Also, it is wise to note Monday’s openings and Friday’s closings this week to confirm or deny the current trend. Avoid overtrading and watch out for volatility imparted by HFTs. Mark any gaps that may also appear during the week, paying particular attention to those on Monday.

Happy trading!