The past week has seen strong price movements as investors’ fears over US inflationary pressures increased. Wednesday’s data triggered a strong sell-off.
In addition to inflation, the dangers of overvaluation, an economic crisis and the fear of a deep correction put pressure on investors. Despite this, the market ignored the negative data on Friday and rallied strongly as the risk premium continues to favour equities, at least for now.
Sector rotation is also helping to avoid excesses that cannot be controlled. In this way, sell-offs are quickly absorbed and bearish signals that do not extend beyond one week fail to strengthen.
Next week we will see more inflation data (Eurozone, UK, Japan and Canada). Inflationary pressures in the Old Continent are currently less strong than in the US but could show changes that could cause serious bearish market pressures. Finally, the first quarter GDPs of Japan and Europe and the minutes of the Fed’s latest meeting on Wednesday evening should be mentioned.
Week analysis and scenarios for the DAX and Dow Jones
Although indices such as the S&P500 and the Dow Jones have broken down their weekly supports, their recovery on Friday opens the door to a nice monthly rise. It is undeniable that the discrepancies between the various indices cannot yet confirm a sustained downtrend as the conditions for it are not yet in place. The coming week should again see a low in the first sessions and close on Friday with further highs. The probability that Friday’s rise was a false signal is very low. As always, we will follow the weekly support levels in order not to be caught unprepared for any trend change.
DE30 – At the opening of last Monday, the Dax saw a vertical collapse, quickly abandoning the 15,356 area and falling almost uninterrupted until Thursday morning. We then witnessed the index touching key support level at 14,804. From here, price recovered the entire slump until it touched 15,464 at Friday’s close, the last resistance before new all-time highs.
At this point the probabilities of strong rises and new highs are very high. We expect price above 15,464 and then higher ranges above the weekly high 15,665-15,755 with possible extensions to 15,900. The real target for the DAX should be to reach the 16,000-16,200 area.
Intermediate supports at 15,423-15,404 and 15,311-15,280. Weekly support confirmed at 15,269. Key area to maintain bullish strength should be 15,209. All these levels are optimal to look for buying points. Remember that below 15,209 we will have a new short-term reversal.
Supports in 15,119-15,062-15,043 are weaker after last week’s uptrend; watch out for supports 15,017-14,981 and 14,842-14,804. The loss of these last two areas opens to a more important correction, with first target in the 14,600 area.
US30 – The cyclical rotation is helping and the Dow jones after 3 sessions of strong declines has strongly reversed the bearish pressure. The US index strongly broke 34,502 to the downside and the 34,015-33,976 area leading to a weekly trend change. However, even though the US index broke down 33,725 and then 33,585, the quick reversal and recovery of 34,000 points negated any possibility of a bearish continuation.
The bullish tension can continue if the price remains above 34,445. The last obstacle towards new highs is the resistance in the area 34,717-34,846. In that case, surpassing 35,000 points will be easily reachable. The next target is 35,500 with possibilities of going much further.
In order not to lose the weekly trend we can’t break below 34,015 – 33,976 points. Intermediate supports at 34,307 and 34,134.
New key supports for the uptrend at 33,873 and 33,585. If these are lost, bearish pressure will return with strength confirming the bear market. First target should be 32,956.
IMPORTANT NOTE: Despite the dips at the beginning of the week, the bullish trend is still strong. We are expecting a nervous and volatile market, so it is wise to note Monday’s openings and Friday’s closings to confirm or deny the current trend. Avoid overtrading and pay attention to the volatility caused by HFTs.
Have a good trading week!
Research provided by Giancarlo Prisco
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