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Market movers

During the last week, markets were driven upward by partial euphoria among traders, first buoyed by the Truss-Kwarteng duo’s U-turn on taxes and then by central banks’ possible slowdown in interest rates. In contrast, the second part of the week saw the OPEC+ decision (production cut of 2mln barrels per day) that was negatively received by the consensus, as well as continued pressure from the perspective of the geopolitical and energy crisis in the Old Continent.

On Friday, Non-farm Payrolls data in the United States continued to show a robust labour market pushing stock markets lower on expectations of future interest rate hikes. Last month the number of employed rose above expectations to 263K, while the unemployment rate in September fell to 3.5 % year-on-year.

The first part of this week will focus on European macroeconomic data, including unemployment and GDP in the United Kingdom and the final German inflation figure.

From Thursday, October 13, the markets’ focus will turn to the U.S. inflation rate (along with China’s consumer price index values), followed by the Michigan consumer confidence index, to be released on Friday, October 14.

Weekly analysis and market scenarios for DAX and Dow Jones

The fear of inflation and further rate hikes is back. This suggests that an economic recession may be just around the corner, possibly even a several percentage point drop in markets.

Since January this year, stock market prices have fallen more than 20 % due to fears of a rate hike, the war in e, and economic recession.

How to interpret the bearish signal from the markets after the upward attempt early last week?

At present, prices are discounting, and have already priced in, the most damaging scenarios, which could lead to a sustained upward return of the stock markets. Friday’s bearish signal is not yet confirmed; macro data will dictate the path.

For now, the stock markets are pointing toward further declines until mid-October, but reversal swings could form as early as the next few trading days.

The expiry of the annual set-up on 16 August, as expected, led to significant changes, having probably identified a period high. Now the following setup is mid-October. The annual forecast continues to deviate from the actual price trend.

If the stock markets return below the June lows, the descent could continue with worrying effects until October this year and then until March 2023. In the best-case scenario, we should add another 10% - 20% from current levels (for the S&P500 index means seeing the 3200-2800 area).

If stocks rise from the current lows without breaking them, the worldwide stock market (50% America, 30% Europe, 20% Asia, and emerging countries) may have a positive streak that may last 18/24 months. Between 5 & 10 years, one could expect returns averaging 12/18%.

What should we expect in the short term? What to expect in the short term? Now the financial markets will play an important game, and they will have to confirm or not that the worst is behind them.

The S&P500 index pushed strongly to the upside through midweek. Friday’s NFP data led to a heavy price reversal after touching our intermediate resistance in the 3821-3837 area. The weekly close was in the 3632-3650 area.

The psychological support around the 3600 mark is crucial. In case of new collapses and new confirmed yearly lows on a daily basis, the market will likely head toward 3576-3555 and 3485. We will monitor whether the latter two levels can stop, at least in the medium term, the bearish direction of the markets and offer a reversal until December. Should we go beyond that, 3200 will be the target, which is sought after by funds, investors and traders halfway around the world.

New resistances in the following areas: 3650-3663, 3674-3693, 3714, 3759, 3774-3782, 3805, 3821-3827.

Above the 3821-3837 area begins a new upward path that sees the peak in the further weekly resistance located in the 3887-3898 area; this area, if surpassed on a daily basis, could lead to a reversal of the weekly bearish trend.

The resistances in the 3920-3935 and 3946-3968 areas are confirmed. If the index retrieves these areas, it could be considered a first positive bias. The 4000-4022-4040 zone is the critical resistance to break down because above it price could stretch toward the weekly resistance 4072-4080, practically the same zone where, a couple of weeks ago, we had a widely warned price reversal.

At that point, prices could have a vertical climb because the sell-off of 13 September left significant volumetric gaps. The last resistance is in the 4134-4157 area, from where prices will try to stretch towards the critical 4182-4202 area, the monthly bullish reversal area.

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? Despite Friday’s sharp close, it is considered likely that by Monday, prices could move back to the upside. A low is expected on Monday and a high on Friday. This sample-path will be confirmed or not on Monday.

DE40 – The Dax began the week with a spectacular climb from the critical level of 12027 to touch the intermediate resistance around the 12694 mark. Prices went no further; on Friday, the Dax closed in the 12327 area after the U.S. indexes collapsed in conjunction with the labour market data.

New supports around the 11875-11950-12024 areas. This area is crucial and could be easily reached. 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 around the following area: 12266-375, 12426-485, 12502-549, 12585-635. These areas can be easily broken with a good volumetric push; the target remains weekly resistance 12676-12707. We will still keep them in mind for possible short re-entries opportunities.

Resistances around 12857-899-939 (weekly resistance), 13028-13133, 13176-268 and 13371-418 are confirmed. The 12694 mark is the intermediate control level; the 13030 area is for possible bullish accelerations, and the 13391 is for potential weekly reversals.

The 13509-13676 area is confirmed as a crucial resistance. Only a recovery of this area could offer a significant price reversal. The key resistance is around 13520. Intermediate resistances around 13371-254-200 are confirmed, and this area may favour some quick bounce and then look for new short entries.

Above 13509-13676 intermediate targets at 13743 and 13805.

Another key resistance is around 13854-13929. Only above it will there be chances to see medium-term recoveries.

Successive resistance levels are around 14003 and 14209. Volume-based analysis suggests that bearish momentum could remain strong if the price doesn't recover 14347 and 14440. Surpassing the 14592-14545 area may be the only indicator of a more bullish phase.

The other remaining levels can come in handy to observe for pullbacks. Monthly resistance stays around 14810-899. 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 key resistance 16230, from which to target the 16300-16500 zone.

If by next Friday prices remain above 12463, we will see a chance for a bullish recovery on a monthly basis; below 11950, on the other hand, the weekly trend may continue to push hard to the downside.

US30 – The Dow Jones index touched our mid-week intermediate resistance 30163-303, then collapsed into our bullish acceleration zone 29225-353-474.

The critical level for this week is around the 29485 mark. Below it, we have three new support zones (29241-377, 29095-970 and 28871-734). These supports have to be looked at for long pullback entries. Should they all be broken to the downside, prices could reach 28319, 28051, 27765, and 27019 in extension.

Above 29485, we could see vertical price accelerations targeting the new resistance 30066-30205 through 29713. The target remains the weekly resistance zone 30645-930, beyond which we could see a solid upward price recovery.

Resistances 31108-31245, 31512-31588, 31617-31861, 32006-32137 and 32445- 32631 are confirmed. To avoid new bearish pressure, the 30645 area must be maintained. Above 30873 and 31298, there are possibilities for bullish acceleration. A breakout of the intermediate resistance at 31562 could lead to the possibility of a bullish reversal. Key resistance is in the 32200 area.

Above 32445-32631, we have the resistances 32882-33035 and finally 33305-577. All these areas need to be broken through strongly; otherwise, any bullish attempt will probably end miserably. So we may have excellent opportunities to go short again.

The 33703-33890 is the first key area to be broken for a bullish acceleration; 34148-084 is our monthly attention level. Above it, prices could start a more consistent reversal.

New resistance around the 34254 area. Resistances at 35157-34850 and 34437 are confirmed.

Monthly positioning above 35599-35963 could offer a new bullish direction; 35157-34850 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 possibility of further bullish volumetric thrusts.

IMPORTANT NOTE: Despite Friday’s bearish pressures, traders’ attitude remains to look for buying entry points between now and the end of the year. We expect a significant price recovery in the coming weeks. If Thursday’s inflation figure turns out to be sufficiently negative, financial markets may begin a parabolic bullish movement.

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!

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