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Market movers

Stock exchanges closed higher despite continuing fears of an overly aggressive monetary tightening promulgated by central bankers meeting in Davos during the annual economic symposium.

Last week, on the other hand, the quarterly earnings season got into full swing with the presentation of Netflix’s data, which boosted the share price thanks to an increase in subscribers beyond expectations.

Next week the focus will be on macro data, including the flash estimates of the European PMI indices for January, while in the US, the fourth quarter 2022 GDP figures will be published and the PCE Core index.

Watch out also for publishing upcoming quarterly reports, including those of Microsoft, Tesla and Intel.

Weekly analysis and market scenarios for DAX and Dow Jones

Insiders and investors continue to debate whether or not there will be a recession in the coming months and what further interest rate hikes might be. They also ‘argue’ about what the effects of these might be on the future economic situation.

In the meantime, markets in the aftermath of the last rate hike have risen about 15/20% and may have made a relevant low, if not the definitive one!

Companies' profits may have fallen because corporate management, anticipating a possible downturn in the economic cycle, has adopted policies to ‘safeguard’ their balance sheets and production. If layoffs also increase in the coming months (and this, for those who know the rules of business inside out, is a godsend for companies!), all this, in the writer’s opinion, will be future fuel for the economy and the markets! Price stability will probably be achieved, and in the meantime, investors’ appetite for risk will increase, causing shares to rise.

The barometer of the year's first week and the 6 January setup generated a very positive signal for the stock markets. If the first annual setup confirms this at the end of January, the market could attempt an extension until March.

Our annual forecast sees a low in January and a high between November and December, in line with the data received this week. The expected yield is between 15 and 20%. October 2022 could be the low of this decade.

Macroeconomic data confirm what would appear to be the central banks' orientation. Macroeconomic data will be monitored, but the rate hike would seem to be over as inflation tends to recede. Growth is slowing down, but moderately, and this factor does not seem to threaten corporate profits, which should continue to be on a moderate upward trend with a positive outlook. Therefore, despite the vigorous rate hike over the past year, as ventilated by Powell at the last Fed meeting, a soft economic landing is expected during 2023.

The next 3-4 weeks will be crucial, so we will proceed to confirm the yearly forecast from time to time.

Wall Street continues to show strength this week; if history is correct, this is only the beginning of a ride that will last many years. At least until 2027. Nasdaq tech could take the lion's share in a scenario of moderate growth as it looms and rates that will remain static for some time because inflation may/should come back.

Everything already seems to be a foregone conclusion in line with the cyclical behaviour we read in the time series. Stock prices move at least 6/9 months before the economy. And now, where everything still seems to be in doubt, prices will continue to rise in a pattern where the multi-year low is likely already marked.

The S&P500 index, after having touched a new weekly high in the 4034 area, made a healthy reversal, which led prices to strongly test our weekly support 3930-3918-3907, not going beyond 3900 and closing on Friday with a vigorous rebound in the 3988 area.

If prices stay above 4008-4015 this week and break the last resistance in the 4020-4030 area, the index can look for more ambitious bullish targets, namely 4045 and 4078. Above them, the bullish acceleration may continue with more strength. Below them, any sell-offs beyond intraday can lead to quick and valuable corrections, ideal for purchases at lower prices.

New support in the 3988-3979, 3970-3957, and 3949 areas. 3930-3918-3907 are again confirmed as the weekly support areas. 3893-3887, 3863 and 3834-3844 are confirmed. Critical support in the 3808-3798 area, below which prices 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.

Above the 4009 mark, we can find key resistances around the 4045 and 4078 marks. Other resistances are 4096, 4119, 4128 and 4150.

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? If the weekly support levels are not maintained between next Monday and Tuesday, the correction from last Wednesday might continue, leading prices to search for at least the 3711 area; therefore, the other indices will also continue to fall. If, on the other hand, there is no further correction, we will go up until the next FED meeting on 1 February.

DE40 - The German index unsuccessfully tried to stretch above the resistance in the 15261 area and then turned downwards in the wake of the US indices, closing on Friday in the 15096 area after turning to our support in the 14939 area.

New supports in the 15095, 15031-14967, 14939-14916 and 14814-712 areas are also confirmed as weekly support areas.

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 15167-15239 area. Reaching levels 15261 and 15380 later could push prices up to 15570 and then towards the weekly resistance of 15665.

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 attempting to break the 34359-498 area again, an area on which it had not traded since mid-December 2022, saw a violent fall of about 1,300 points due to the quarterly reports of Goldman Sachs and Morgan Stanley.

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 32872-983, 33026-102, and 33161-322 areas are confirmed. The latter is not to be missed to continue a strong uptrend. Other support in the 33495-530 area and confirmed support around 33679-836. Weekly support is around the 33580 mark, and monthly support is around the 32870 mark.

New supports in the areas 32975-33097 and 33136-252 are particularly packed with buyers and will be our most important defences against further declines. Next relevant areas: 33245-591, 33908-991 and 34161-267. 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: The bullish trend is powerful. If recoveries are as intense and fast as Fridays, we should not see any significant price falls until the first decade of February.

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 23rd - 27th January appeared first on Key To Markets Blog.