DAX 40 & DOW JONES: weekly analysis 15th – 19th May

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DAX 40 & DOW JONES: weekly analysis 15th - 19th May

Market Movers

The stock markets closed the week mixed. The S&P500 index was flat, while the Dow suffered from puzzling quarterly earnings of companies like Disney. Quite the opposite, the Nasdaq reached new annual peaks as traders are pricing in the FED, getting closer to the point where it will start to cut rates. The inflation data posted a slight and continuous decline, confirming that the Fed may approach a change in monetary policy.

This week the main focus of traders will be on the US debt ceiling quarrel and retail sales, which will be released on Tuesday. The ZEW index in Germany and industrial production in China will be released on the same day.

On Friday, we will witness statements from Fed Chair Powell and President ECB Lagarde, which could bring spikes of volatility in the markets.

As earnings season nears the end, US retailers will be in focus, with the likes of Walmart, Home Depot, and Target due to report quarterly results. The earnings releases will not only shed more light on the health of these companies amid high inflation and rising interest rates but will also provide more clues on how the US consumer is holding up.

Weekly analysis and market scenarios for DAX and Dow Jones

The week that just ended confirmed the unlikelihood of accelerating upwards but has also confirmed the solidity of the support levels that managed to face bearish pressures. From this milestone, every session of every week could be the right one to witness the start of a strong directional movement. The longer this impasse, the more violent the subsequent directional movement will be. Which direction will it take? The odds still all remain to the upside.

The medium-term trend is still bullish. The month of May should be monitored closely and if there are no major support breaks in the mid-month, we could witness a strong bullish movement. This bullish movement will take place thanks to the seasonality, which will deliver upward lunges until August.

Beyond the rhetoric of the debt ceiling, the recession, and the banking crisis, only a strong flip in sentiment could lead to a trend reversal. Earnings of US mega caps have shown off and many other companies are also ramping up the increase in revenue.

The average annual returns on international equities (World Stock Exchanges based on GDP) are around 11%. Current rates in America are about 5%. With a projection for 10, 15, and 20 years, equity markets always beat bond markets. Therefore, we should be at the starting point of a 10-year bull market.

Rising interest rates won't directly and inevitably lead to a recession. As long as these hikes are balanced with economic growth, there should be no danger. On the other hand, an exaggerated rate cut could drag down the markets for a long time.

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. Despite some short-term overbought, the markets are unstoppable and will be so for a long time. Here is why.

We have highlighted several times that stock prices tend to move at least 6/9 months before the economic 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.

During 2023 we expect the following pattern to emerge: the low should be posted in January or during Q1 2023, and the high during Q4. Average market returns up to 20-25%.

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

Last week the S&P500 index was stuck sideways, closing in the 4132 area.

New supports are placed in the 4129, 4115, and 4100 areas. The loss of the latter support could lead to heavy drawdowns.

Confirmed supports in areas 3930-3905-3899, 3945-3957-3961, 3979, 3993-4000, 4032-4043. 4064-4075 is the weekly support.

3890-3879 is the critical zone because, in this specific area, buyers managed to concentrate. Additional support in 3864-3857 areas. Another intermediate zone is in the 3822-3814 area.

Critical support in the 3808-3798 zone was confirmed, below which prices could start a new downward spiral.

Support 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 witness a new trend inversion.

The psychological support of 3600 remains crucial. Support around 3644-3651 marks has halted the fall and is now the monthly support after this strong uptrend. It shouldn't be touched again, to avoid new and heavy downward movements. Below is the 3607 level. Then again, the 3557-3547, 3538-3524, and 3514-3507 are support levels. The 3485 support is now the annual, critical, 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. Should we go beyond it, 3200-3300 will be the target, sought after by funds, investors, and traders halfway around the world.

If prices this week will remain above 4126, the index will be able to search for bullish targets with the intent of a monthly reversal; in other words, above 4202, the gap filled the Aug 22nd 2022, in the 4221- 230 and 4258 area.

New resistances are placed in areas 4138, 4155, 4177, and 4194-4202. Resistances in the 4258 and 4293-308 areas are confirmed. Other resistances in areas 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 2022 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 monthly; the following targets remain 4717 and 4780.

How to move? We firmly believe that prices will continue their steady upward movement also this week. Only a heavy sell-off and the breakouts of the weekly support levels will be able to reverse the trend. It will be necessary to monitor key data that will be released on Tuesday.

DE40 - This week, the German index has remained barricaded in a tight range; 15953-886 and 15859-825 areas blocked off any breakout attempt.

New supports in 15894-854, 15783 areas and confirmed 15733-687, which remain weekly. Confirmed the support zone 15657.603, 15652 and 15538-510.

Supports in areas 15439, 15368-308 and 15287-247 are confirmed, followed by 15152-196, 15247-287, and 15308-368. These zones represent the strength of the ongoing rally and must be held for it to continue the movement.

Support in areas 14957-14844 and 14737-603 is confirmed. This support becomes the weekly level for new upward movements or heavy drawdowns.

Intermediate supports were confirmed at 14138-184, 14342, and 14414-545.

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

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

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

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 long entry from pullbacks. 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.

It was also confirmed support in the 19920-15006 area. This is 11875-11950-12024, 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 resistances in the 13930-985 and 16014 areas. Going beyond the 16076-16136 resistance level would offer the possibility to witness the key resistance 16230, from which it is possible to aim for the 16300-16500 area.

If by the following Friday, prices will stay above 15733, we will witness a chance for a continuation of a bullish movement on a monthly basis; below 15630, the trend will move strongly downwards again.

US30 – This week, the Dow Jones index failed to trespass our key resistance located in the 33646-786 area, closing the week in the 33241-183 zone.

New supports in 33217-133 areas and also confirmed 33105-021. Weekly support in the 32971 zone.

Other supports in the following areas: 32499-610, 32645-755. Both are the foundations for this new uptrend. I am following support levels 32801-875, and 43945-990.

Confirmed supports are placed in two well-bought areas: 31197-497 and 31536-764. Other support areas are placed at 31753-920, 32111. Critical is the 31861 mark, which was reached again last week and became new weekly support.

31036-31125 remains the support critical month level. Confirmed support around 30953-815, 30715-614, 30559-381, 30253-136, and 29696-29906.

The 29485 mark remains a critical level. In addition to the 29619-529 and 29338-29264, the support zones 29159-28876 and 28800-28685 are again confirmed. These are all excellent supports to look for long entry opportunities from pullbacks. Should they all be pierced to the downside, prices could move toward 28319, 28051, 27765, and 27019 in extension.

The critical marks are 34143 and 34192; we could witness vertical thrust from here. New resistances in area 33325-474 and 33545-601 areas. Weekly resistance was confirmed in areas 33646-786 (the most important to overcome), 33840-898, 34000-048, and 34130-203. Confirmed the resistances in areas 34330, 34498, 34607-706, and 34801-34950, which will be our target for the month.

Monthly positioning above 35599-963 could offer a new bullish direction; 35157 and 35614 areas are significant because they may lead to either direction extensions. Monitoring this area is extremely important.

A move through 36529 and holding that level would allow 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 market is still posting a bullish phase but is also experiencing turmoil. Do not let our guard down for now, but if the weekly supports manage to hold up, there will never be a reversal trend; instead every strong vertical thrust will be possible.

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 15th - 19th May appeared first on Key To Markets Blog.

Source: DAX 40 & DOW JONES: weekly analysis 15th - 19th May