The past week we had a strong pressure on equity markets as they tense up for the Federal Reserve meeting on 21-22 September, despite CPI data showing a further slowdown. Next week’s meeting is obviously the most closely watched event globally. Despite press rumours in recent days of a possible announcement by Chairman Powell to launch the tapering process in November, uncertainty remains high and volatility could be considerable.
After the rollovers, other important events await us this week such as the launch of the new DAX40 and the German elections next Sunday. More central bank meetings await us, including those of the UK and Japan. On Friday the IFO index in Germany.
Analysis of the week and scenarios for DAX and Dow Jones
The weekly trend continues to be bearish. This downtrend needs to be followed closely, in order to understand if the event can be limited to a few weeks or can continue for several months.
If there are no immediate V-reversals, the stock markets have a correction in the offing that can go beyond 10%. We are talking about seeing the 4,000 point SP.
The 4,340 and 4,204 are the next two key supports of the S&P500 index. Only a recovery of 4,485 on a weekly basis will bring a minimum of bullish relaxation. For now, the September rollovers and seasonality are the main reasons for this movement; the Nasdaq is still holding well, so we will follow the trend every week and check for a possible reversal, especially in view of the FED meeting.
We expect an attempt to rebound between Monday and Tuesday, and then see new declines until Friday. The short trend is strong and only a vigorous recovery of the prices on a weekly basis, will allow a new uptrend.
DE30 – The German index remained trapped until Friday in the 15,690-15,755 area, without offering any directionality. Finally, at the close of the week, the loss of 15,641 brought the price to close very close to the key support 15,400, indicated in the past analysis.
Only with a recovery of 15,755 will we have the possibility of price acceleration up to the 15,855-15,910 area, where the weekly resistance is. Pay attention to 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.
In Friday’s descent the DAX created numerous resistances. The strongest pockets are located in the areas 15,465-15,516 and 15,545-15,645. It will take a lot of volume to be able to break down and maintain these areas. It is fair to say, however, that with the emergence of the DAX40 tomorrow, it would not be surprising to see a strong rally, as the active and passive funds will have to make adjustments and add new stocks, bringing a lot of liquidity to the German market.
The loss of the key support 15,423-15,400 will lead to new declines with the following targets: 15,332, 15,216-15,176 and 15,119-15,071-15,043. All these levels are optimal for buying points and we can expect strong reversals on them.
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 U.S. index continues to push lower; in addition to rollovers, investors’ doubts about the U.S. economic recovery and expectations for Wednesday’s event are weighing. The Fed is expected to provide further clues as to when it might start slowing down its $120 billion in monthly bond purchases that have supported the recovery, also helped by the jump in inflation.
The Dow failed to stabilise above resistance 34841-889 last week, closing Friday just below key support 34,535.
A strong rebound cannot be ruled out if the prices manage to stabilize above 34,572, with a possibility of retesting 34,791-34,889. Above this area we could see further rebounds, with a target of resistance 35,056-35,152, which will determine whether or not we can return to a bullish relaxation. If these areas are not knocked down, we will return to the downtrend. We signal also the resistance 35,272 and then 35,391-35,436 area. Very important at weekly level the recovery and maintenance of 35,182.
Only above 35,513, the price will look for 35,600 and then 36,000 points, or new all-time highs. The range 35,255-35,513 has been violated downwards.
From 34,535 onwards we have a lot of support up to the key area of 33,980-33,725, due to the high amount of buying of value stocks by investors. We signal the zones 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 33686. Key level at 33,608. Following support at 33,215 and confirmed 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 the CPI data on Tuesday, the prices of the indices continued their downward race. It is necessary to keep a continuous watch on the supports and volatility, as the trend can see strong upward 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 declines 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. Wednesday night the Fed may offer strong directionality for the rest of the week.
Research provided by Giancarlo Prisco
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