DAX 40 & DOW JONES: weekly analysis 30th January – 3rd February

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DAX 40 & DOW JONES: weekly analysis 30th January - 3rd February

Market movers

European stock exchanges closed the week on a positive note, thanks to positive quarterly earnings reports and the PCE Core index, which fell to +4.4% y/y in line with consensus expectations. The decline in the Fed’s most closely watched indicator thus strengthens speculation that the US central bank will ease monetary policy.

This week, investors will focus on central bank meetings (Fed, BoE and ECB). However, the focus will also be on numerous macroeconomic data, such as inflation and unemployment rates in the Eurozone and the manufacturing and services PMI indices in Europe and the US.

Also in the background will continue the quarterly earnings season in which big names such as Apple, Amazon, Alphabet, Meta, Pfizer and Exxon Mobil will present their results.

Finally, special attention will be paid in the run-up to the central banks’ monetary policy decisions, where much volatility is expected on major currency exchange rates such as EUR/USD and GBP/USD.

Weekly analysis and market scenarios for DAX and Dow Jones

This start to 2023, although in positive territory, has not been the brightest for the US indices, which rank at the bottom of the world’s best. What does it take to make stock markets explode on Wall Street? There are many variables at play at the macroeconomic level, but from a technical standpoint, the levels beyond which the market could go up or down are obvious.

During 2022, the Federal Reserve’s aggressive rate policy adversely affected the Dow Jones and other US indices. To fight inflation, rates are being pushed up quickly and significantly.

In 2023 some more upward adjustments are also possible. Still, the slowdown in inflation might favour a less strict policy of the Federal Reserve with consequent positive effects on the stock markets.

The likely lows in October will have a high probability of remaining so for many years. They could represent the lows of the entire decade. Now, despite some short-term overbought, the markets are unstoppable and will be so for a long time. Here is why.

We have repeatedly explained that equity prices tend to move at least 6/9 months earlier than the business cycle. For this reason, during the final part of 2022, the markets would have posted a significant bottom between June and October and then taken off again for the long term. The prices marked during the year had discounted the most unfavourable geopolitical and geo-economic conditions.

Inflation and its impact on the world economy were likely to prove a bogeyman, as the effects of rising interest rates would be limited. We repeat: as long as rates and economic growth are balanced, this will fuel the stock markets. The (growing) US GDP figure of the past few days is an early testimony to this.

This was already anticipated by Jerome Powell of the FED, who predicted a soft landing of the economy during 2023.

During 2023 we expect the following pattern to form: low in January and high between November and December. Average market returns of up to 25%.

As always, we will confirm the annual forecast from time to time.

The S&P500 index last week reached and broke through our key resistances, i.e. 4045 and 4078, closing on Friday in the 4084 area after touching the 4096-4119 area.

If prices remain above 3949, weekly support, the index can continue to look for more ambitious bullish targets, i.e. 4157 and 4182-4202.

New supports in the 4084 area, 4060, 4053-4041, 4032-4015, 3999, 3968-3975. These levels are ideal for intraday and multiday buying opportunities. 3930-3918-3907 remain a crucial support area. Confirmed 3893-3887, 3863 and 3834-3844. Critical support in the 3808-3798 area, below which price could start a new downward spiral.

Supports around the areas 3669, 3680-3689-3701, and 3711-3726-3733 are confirmed.

3762 and 3711 are the monthly levels that support the current uptrend, so beware of any breakout of these levels: we could see new and heavy declines.

The psychological support 3600 remains crucial. Support around 3644-3651 points has halted the fall and is now the monthly support after this strong uptrend. Prices should not return around that area again to avoid new heavy bearish pressure. Notable levels below it are 3607, 3557-3547, 3538-3524 and 3514-3507. The 3485 support is now the annual, key and historical level for the S&P500 index. We will test whether this last level could stop, at least in the medium term, the bearish direction of the markets and offer a reversal until December. Should we go beyond it, 3200-3300 will be the target, sought after by funds, investors and traders halfway around the world.

The 4032-4015 area will be vital. Below it, we could see fast bearish spirals. Above 4084 remain 4096, 4119, 4128 and 4150, levels that can lead to rapid price reversals on their touch.

The target remains a final resistance in the 4157 area, from where prices could stretch to the critical area around the 4182-4202 marks, the monthly bullish reversal zone.

Unless prices see a weekly close above 4202, any attempt at a bullish reversal will be short-lived. The 22 August gap in the 4221-230 area and closing of the index above 4258 will probably be decisive.

We can find confirmed resistances in the 4258 and 4393-308 areas. Other resistances are around 4313-4339, 4396, 4415-4451, and 4480.

The 4506 and 4554 are the resistance levels to be broken to see the downtrend that began in April reversed. The 4580-4590 is the area to overcome to break down the monthly resistance in the 4613 area.

A weekly close above 4613 may guarantee a reversal of the annual trend if confirmed on a monthly basis; the following targets remain 4717 and 4780.

How to move? The weekly low should form on Monday and the high on Friday. However, the first annual setup will expire on 31 January, and between that day and the next, the dynamics should be closely monitored because they could affect prices for a few weeks, even until March.

DE40 - The German index remained heavily sideways this week, stuck between the two key levels: 14989 and 15173.

New supports at 15248-332, 15165-127-095, and confirmed 15031-14967, 14939-14916 and 14814-712, which is also confirmed as a weekly support area.

Intermediate supports around the 14138-184, 14342 and 14414-538 areas. The monthly resistance around 14810-899 has been broken down, so the Dax may start a medium-term reversal.

New key zone in the 13814-781 area. The loss of the volume zone 14069-13974 opens the way to the monthly support in the 13621 area.

Monthly support in the 13621 area. The Dax left a huge volumetric gap after the FED's inflation figure, which was easily penetrated at the loss of 13975.

Solid supports in the 13692-608, 13550-516, and 13457-410 areas. Confirmed supports around 13314-333, 13331-410, 13438-467.

Intermediate volumetric supports are confirmed in the 12865, 12833-12909, 12978-13038, 13113-178, 13222-280, and 13307-357 areas.

Support in the 12808-766 area is confirmed. From 12628 to 12766, there are a series of intermediate supports, helpful for looking for long pullback entries. 12566 becomes monthly support.

Other key supports are 12407-517 for volume concentration and 12353-275, the first bullish turn zone. Confirmed supports in the 12223 and 12136 areas.

Confirmed supports are in the 11875-11950-12024 area, which halted the price fall after the US CPI data on Oct 13th. Losing it would mean new bearish pressures and a touch of the weekly support in the 11766 area; below it, extensions to 11650 and 11542. The 11095 mark could be a target in case of a massive sell-off. These levels can be seen as annual reversal points.

New resistance in the 15248-15332 area. Recovery of the 15262 area first and 15380 then could offer a bullish boost up to the 15570 resistance, where we will check the possibility of a new stretch to the weekly resistance around the 15665 mark.

An intermediate resistance is around 15810, with a new bullish strength only above 15944.

Finally, a break of the resistance area around 16079-16136 would offer the possibility of a stretch toward the critical resistance 16230, from which to target the 16300-16500 zone.

If by next Friday prices remain above 14729, we will see a possibility of a bullish continuation on a monthly basis; below 14157, on the other hand, the trend may push forcefully downwards.

US30 – The Dow Jones index, after lateralising on the key levels 33364 and 33487, reached the resistance 34161-267 but failed to go beyond it, recovering most of last week’s fall, thanks to the particularly positive quarterly earnings reports.

Confirmed supports placed in two well-bought areas: 31197-497 and 31536-764. The 32000 area is the psychological support. Other support areas are 31885-32064, 32118-211 and 32254-316, which are excellent for buying opportunities.

Support areas 32415-360 and 32546-624 are confirmed, and we can find new support in the 32696-810 area. The 32870 mark remains the weekly support.

The zone of 31036-31125 offered a new upward price turn. Confirmed support around 30953-815, 30715-614, 30559-381, 30253-136 and 29696-29906.

The 29485 mark remains a critical level. Below it, in addition to 29619-529 and 29338-29264, we have the following confirmed support areas: 29159-28876 and 28800-28685. These are all excellent supports to look for long opportunities. Should they all be pierced to the downside, prices could move toward 28319, 28051, 27765, and 27019 in extension.

Support zones in the 32872-975-33097 and 33136-252 areas are confirmed. The latter is not to be missed to continue a strong uptrend. Weekly support is around the 33364 mark, and monthly support is around the 32870 mark.

New supports in the areas 33432-580 and 33681-823 are particularly packed with buyers and will be our most important defences against further declines. Next relevant areas around 33916-34052 and 34161-267 are confirmed. Resistances in the areas 34348-498, 34607-706, and 34801-34950 are confirmed and will be our targets this month.

Monthly positioning above 35599-35963 could offer a new bullish direction; 35157 and 35614 areas are significant because they may lead to either direction extensions. Observing this area is extremely important.

A move through 36529 and holding that level would offer the possibility of seeing area 37000 if prices forcefully break the last resistance placed at area 36786. Above 36236, we maintain the option of further bullish volumetric thrusts.

IMPORTANT NOTE: Strong bearish shocks are possible between the annual set-up on 31 January and the FED meeting due to speculative forces. Maintaining weekly supports will be very important to avoid more lasting falls. Keep the risk for trades under control; we will have extreme volatility.

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

Happy trading!

The post DAX 40 & DOW JONES: weekly analysis 30th January – 3rd February appeared first on Key To Markets Blog.

Source: DAX 40 & DOW JONES: weekly analysis 30th January - 3rd February