Last week closed with new all-time highs for many US and European indices on the wave of optimism related to the easing of tensions over the coronavirus pandemic.
Moreover, the market did not seem to be worried about inflation (let’s see what happens when interest rates on the US curve start to rise again) which can be seen as a temporary phenomenon or friction between the US and Russia which then led to the application of and subsequent significant sanctions.
Next week we will have two important events. The first one is the publication of new quarterly results by US companies. Netflix, one of the most significant amongst growth stocks, will announce its quarterly figures on Tuesday after Wall Street closes. Intel, Johnson & Johnson and AT&T will also report quarterly results. Another important event is the meeting of the European Central Bank. There should be no surprises regarding the monetary policies in place but the ECB president could provide information regarding the next strategies.
On Wednesday, the inflation data of several countries like the UK will be published, while on Friday we will see the manufacturing PMI of Europe and the US.
Analysis of the week and scenarios for DAX and Dow Jones
On Friday April 16th, we recorded new all-time highs for the most important indices. Now it is important to check if this close could represent a bullish trap and thus bring declines from Monday’s open. Technically, a decline between Monday and Tuesday should offer a closing of the week with new historical highs. Therefore, it’s important to follow the market trend in the first days of the week in order to find reliability on the weekly trend.
DE30 – Last week the DAX oscillated in a narrow range between 15,300 and 15,170 without giving any directional indication either up or down although the basic trend remains strongly bullish. On Friday, the break to the downside of the 15,300 area with big volumes and volatility, brought the price to our first weekly target in the 15,464 area, it then closed above 15,500.
Starting Monday 19th of April, if the Dax maintains 15,464, the second weekly target of 15,665 area will be within reach. We add another target in the 15,755 area whilst we see the mid-term target of the DAX in area 16,000-16,200 points.
First interesting support zone can be found in the 15,423-15,356 area. If the price breaks to the downside of this area, we might see a corrective movement that would target the weekly support in the 15,269 area. However, without high volatility it’s very difficult to see the prices on these levels.
The first weekly support can be identified in a wide area: 15,119-15,017-14,981. This happens because the price has created much bigger support zones where we will continue to see ups and downs. Below 15,119 and within range 15,017-14,981, we should keep in mind the possibility of quick corrections. The target is the intermediate support 14,918 (former resistance) and then the zone created a fortnight ago 14,804-14,842. This last area is pivotal on a weekly level and to avoid a short term bearish reversal.
First weekly support levels are at 14,744 and 14,687. These zones, if lost can offer fast declines towards the key area created last week 14,600-14,545.
Further support levels are around 14,492-14,465 and then near 14,391. The weekly key level is placed in the 14,400 area. The loss of this level could lead to lasting declines.
The 14,301 area remains particularly important. A loss of this level together with 14,231 might trigger a quick fall to buy zones 14,144-14,096 and 14,003-13,974 seen last on Monday the 8th. Conversely, if zone 14,301-14,231 sees an upward turn, it could be the weekly low and offer excellent buying opportunities.
It’s very important for area 13,977-13,877 to hold as it is on a weekly level. The key monthly support remains in the 13,821 area. As long as it is not lost, risks of further declines are likely to be denied. Otherwise, the maintenance of the support will favour bullish phases for the German index.
If the price returns below 13,750 without a quick reversal, it may target 13,650 again and from there onwards to an important support in area 13,620-13,657. If surpassed, the next downward extension may be 13,373-13,289. These areas represent excellent opportunities for long re-entries provided that US indices do not show bearish excesses and that volumes are not too high. Otherwise, shorts may be the preferred trade.
If the 13,373-13,289 area is breached, there are no obstacles until the yearly supports touched in December, 13,142 and 13,020. The possibility of a strong downward acceleration increases considerably if the price goes beyond the 13,000 points area. In this case, area 12,723-12,635 is the first relevant support and we cannot exclude the reaching it in one or two trading sessions. This area is a key support zone, a clear break to the downside of 12,500 points would open the way to further falls.
Key supports remain at 12,155-12,237 and 11,766; below these levels we should expect a trend change. After the possible loss of 11,542, the first targets are in the 11,214-11,095 area. From here, it is possible to extend down to 10,766-10,480, last touched on the 15th of May 2020.
US30 – The Dow Jones rallied strongly on Friday 16th setting another record high on the back of earnings from blue-chip companies, in particular from banking stocks, which continued to climb on the back of quarterly earnings reports.
The uptrend is strong, so there is no point in trying to short until we start to see solid evidence of sellers.
The new high will probably not be formed by economic data but rather by a surprise event. Something has to happen that will create enough uncertainty to encourage longs to start cutting positions. We will see.
In last week opening, prices held above our weekly support 33,585, indicating the presence of buyers. We reached our first target in the 34,015 area on Thursday and then closed on Friday very close to the extension at 34,351.
If we reach that level, the next target will be in the 34,500-34,800 area. The door to 35,000 points is about to be opened.
Intermediate support remains within range 34,015-33,976. It is likely that the prices will fall below this area, if the price breaks through it. However, 33,725 is a strong support that is difficult to touch without an increase in volatility.
The 33,585-33,427 area is a very strong support. Even if the price may reach it fast, it is not likely to break it to the downside at the first attempt unless the market sentiment changes significantly together with a sudden increase of the Vix.
Weekly support remains at 33,314 points. Intermediate support for buyers can be found in the 33,225-33,146 area. We need to monitor 32,956 because if this is lost, we could see bearish pressures.
Buying support levels can be 32,761-32,638 and 32,308. The strong buying zone created three weeks ago in the 32,308-32,137 area is confirmed. Only below it we could see stronger bearish pressures, with possible weekly trend changes.
The old resistance zones of last week would be the targets below 32,137-31,741-31,986 and 31,521.
These levels may be optimal for buying opportunities.
Below area 31,234-31,181, we might see new bearish pressures. However, a break to the downside of the support 30,986-30,922 might be necessary. As we indicated, this move has led to a nice V-reversal which remains very important at the weekly level.
Below 30,986-30,922, the game is played on the support level at 30,648. If that is lost, we will look for 30,476 and vital area 30,098-30,260. The loss of the latter can signal new strength in the bearish trend. If held, it could be a perfect area for new upward reversals.
The 29,618 level will continue to determine the trend of the index in the coming weeks. Below it, we could see a strong bearish movement.
We remind you that only the loss of the weekly support 28,880-29,119 could put in crisis the annual bullish trend. Below this level, we have intermediate support around 28,319-28,051. A close below 27,762-27,625 would undermine the current bullish scenario.
Area 27,019-26,650 is vital as it has been successfully tested and has led to strong bullishness. Sellers will come back strongly if the 26,110 level is broken down. The decline may extend to the main low seen on the 30th of July at 25,777. This is a potential trigger point for a new downward acceleration with three potential main lower targets at 25,399, 25,149 and 24680. Very important annual support remains at 24,309.
IMPORTANT NOTE: This week the laterality of the indices is putting a strain on even the most experienced traders. It is important to work well in the openings and to find intraday trades that can give a minimum of return. At the current state of things, there are no concrete signs of the beginning of a decline (it could start at any moment or not), but we need a sharp rise in volatility.
Have a good trading week!
Research provided by Giancarlo Prisco
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