Last week was characterised by falls in equity indices. The ECB meeting, after strong fears among investors that Christine Lagarde might succumb to pressure from hawkish Northern European bankers, showed a still rather dovish attitude, keeping interest rates unchanged and announcing a cautious reduction in net purchases of securities in the PEPP plan. The ECB number one said that the reduction of purchases will only be a re-calibration of the programme and not a start of the tapering process. On Friday the PPI index, producer price inflation in the US, rose again and put further pressure on the markets.
The coming week is packed with macroeconomic data although investors will be watching one in particular: inflation. Tuesday 14th of September will see the announcement of growth in the US consumer price index, which is particularly important ahead of the next meeting of the FOMC, the Federal Reserve’s operating committee (21st -22nd of September). On Friday 17th of September, inflation in the Eurozone will be published.
Analysis of the week and scenarios for the DAX and Dow Jones
Friday’s close led to the loss of an important weekly support for the S&P500 index. If there are no immediate V-reversals, the stock markets are in for a correction that can go over 10%. We are talking about seeing the 4,000 point SP.
The 4,467 must be watched carefully. The non-recovery of this area on a weekly level is a very strong corrective signal; this is part of the seasonality of September, traditionally the worst in terms of returns. For now, only the Nasdaq is holding up quite well.
The weekly trend is bearish and by following the key levels we have correctly followed the price movements. By Tuesday the weekly high should form and then we will see the prices fall until Friday. The probability, which is very high, is that the weekly high could form on Monday.
Tuesday’s inflation figure, if falling, can fuel a rebound and a change of trend. If, on the other hand, we go over 6%, we will see massive selling on the equities and then sharp declines on the indices.
DE30 – After a bullish attempt on Monday, the Dax failed to break through the resistance 15,944-15,975; since Tuesday, the index has begun a continuous and violent descent, breaking through the support 15,690 and closing around the key support 15,545-15,501, below which would begin a new decline.
The Dax is under bearish pressure. Only a recovery of 15,690 could offer a minimum of relaxation. Above 15,755 there is a chance of price acceleration up to the area 15,855-15,910, where the weekly resistance is. Beware of these levels because 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 loss of 15,544-15,501 leads to the next support in the area 15,423-15,400. Below that we remember 15,332, 15,216-176 and 15,119-15,071-15,043. All these levels are optimal entry points if you are looking for buying opportunities.
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 new lows, with the first target in the 14,600-14,441 area.
US30 – the US index suffered a heavy fall this week, especially on Friday after the PPI data. Since Tuesday, after losing the support in the 35,255 area, the Dow Jones went down relentlessly, closing Friday below the key area 34,701-34,889, after losing the support area 35,056-35,152. Only above 35,513, the price will look for 35,600 and then 36,000 points, which are new all-time highs. The range 35,255-35,513 was violated downwards.
The price did not manage to stay above the weekly support 35,255 or to break through 35,513, creating declining highs in every market session. The first resistance is in the 34,841-34,889 area where we could easily return, and then we will reach the 35,056-35,152 wall, which will determine whether or not we can return to a bullish relaxation. If these areas are not knocked down we will return to a strong downtrend. We also highlight the resistance 35,272 and then 35,391-35,436 area.
From 34,535 onwards we have a lot of support levels until the area of 33,980-33,725, given the high amount of purchases of value stocks made by investors. We signal the areas 34,295-34,267 and the same 33,980-33,725 for buying, the latter key support for the medium-term uptrend.
Some important bearish signals might come if the price goes below 33,686. Key level can be found at 33,608. Following support at 33,215 and confirmed at 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: After Friday’s PPI data, the prices of the indices broke down important weekly supports. It is good to continuously monitor the supports and the volatility, as the trend can see strong reversals or strong downward accelerations. 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. Friday’s bearish turn should be closely monitored, especially in Monday’s opening. By Tuesday evening we should see if prices can fall for the rest of the week.
Also this week, it is wise to take notesof Monday’s openings and Friday’s closings to confirm or deny the current trend. Avoid overtrading and watch out for volatility imparted by HFTs. Mark any gaps that may appear during the week, with particular attention to those on Monday. If any falls at the beginning of the week are quickly recovered, we could have significant bounces or reversals. Conversely, favour shorts.
Research provided by Giancarlo Prisco
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