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Analysis, Educational | May 16, 2022

DAX30 & DOW JONES: weekly analysis 16th – 20th MAY

Market movers

The final session of the week was exceptionally favourable for equity markets, which recovered much of the week’s hefty losses. However, a negative sentiment continued to dominate the financial markets, with investors concerned of central banks’ next aggressive measures in terms of interest rate hikes to combat rising inflationary pressures, especially following the CPI and PPI reports.

Important macroeconomic data will be released next week. The first quarter GDP estimates in Europe will be used to better evaluate the early repercussions of the Ukraine conflict on the economy of the Old Continent. Then we Will have an announcement of Eurozone inflation data, which will provide more insight into whether the ECB will follow the Federal Reserve in hiking rates (probably in July or September at the end of the APP plan).

Analysis of the week and scenarios for DAX and Dow Jones

Markets have reached anticipated lows, which may be annual lows, but the projected robust market rebound on the supports can not yet considered sustainable.

After three sessions of attempting to break through the 4303 area, the S&P500 index has drastically declined in the last two weeks, touching 4000 points and resting on one of the strongest yearly support.

New supports in the 4015 and 3900 area. Losing the latter level could lead to new declines towards the following areas: 3723-3808, 3628-3647, 3576-3555. We will take these into account to evaluate strong buys.

The 4105-4121 level is the resistance area to be broken down, and its recovery will assure new positive price strength. The probability of additional drops will remain strong unless prices break above this region on a daily basis. Best case scenario is a sideways trend in a short range.

The new intermediate resistance is in the 4200 level, from which prices can fly immediately to the crucial 4285-4303 area, whose recovery will secure a weekly positive reversal.

Confirmed intermediate resistances: 4313-4339, 4396. 4415-4451 e 4480.

The resistance levels of 4506 and 4554 must be overcome in order for the decline that began in April to be reversed. To try to break through the monthly resistance in the 4613 area, the 4580-4590 area must be overcome.

If the weekly close above 4613 is confirmed on a monthly basis, the annual trend will be reversed; the next targets are 4717 and 4780.

How to move? Weekly low and high on Monday and Friday, respectively. Between Tuesday’s highs and Wednesday’s early trading hours, there is a bearish sideways phase, followed by further gains. The recovery of the 4300 this week would be a very significant signal of possible equities market revival. We’ll keep track of the market’s progress day by day.

DE40 – Last week, the German index attempted to break through critical support near13200, from which it rebounded strongly and approached intermediate resistance near 14060 this week. The 14282 area represents the weekly resistance to break down.

New intermediate resistances are in the 14137 area and confirmed the 14319-239, 14350-398 areas. The latter, if recovered on a weekly basis, can offer a new bullish force. Confirmed the monthly resistance in the 14810-899 area.

A recovery of the 15261 area first and then 15380, can offer a bullish impulse up to the resistance 15570, where we will check the possibility of a new attack on the weekly resistance 15665.

Intermediate resistance at 15810 and new bullish strength above 15944. Finally, a break of resistance 16079-16136, will offer a chance to see key resistance 16230, from which to target the 16300-16500 area.

In the 13523 area, there is new weekly support. Another key level is 13300, because the price has no hurdles below 13300 till12955, and the price can bounce sharply again from that level.

The monthly support we place in the area 12900-12860. Key support in the area 12700, area that has shown its strength with a strong pullback and that remains vital to avoid new annual lows. Confirmed the 12500-435 area as annual support. Extensions to 12155 and 11766.

If by next Friday the prices will remain above 14300, we will see a possibility of a bullish rebound; below 13523, instead, the weekly trend can push strongly down again.

US30 – April 2022 will go down in history as one of the most terrible months of all time, with the Dow Jones falling 5%, the lowest April performance since 1970. This is the first time the Dow index close red in April since 2005. The first four months of this year were the worst since1939, according to the whole US equity sector.

The Dow Jones, like the rest of the US indices, is still under heavy bearish pressure. We saw a severe drop after breaking out of the 34134 level, touching the historical support area 31567, before turning abruptly upwards last Friday.

New weekly resistance area around 32690, which if broken and held could offer a new bullish directionality. Above that area we could assist to a fast recover with targets at 33000, followed by 33509-33779.

Confirmed intermediate resistances: 35157-34850 , 34437 e 34237.

Prices over 35599-963 on a monthly basis will offer new bullish directionality; 35157-34850 and 35614 are the levels where prices can either restart to the upside or push down again. That is why we need to monitor these levels very carefully.

A movement that will cross the 36529 and that will keep this level, will offer the possibility to see the 37000 area if the prices will strongly break the last resistance located in the 36786 area. Above 36236 we maintain the possibility of further bullish volumetric thrusts.

The 32182 area provides important support from which a strong directionality can begin this week. Above it, targets are the 32690 and the other levels mentioned before. Below that level, intermediate supports at 31782 and 31332.

Losing that level could lead prices to new lows: key area 30814-30732, where we can assist both to a strong possible rebound or another consistent drop until 23983, after breaking down the intermediary levels at 30374-30223.

IMPORTANT NOTE:

The Fed appears to want to leave the markets to their own course for the time being. We can’t wait for the low or the high since it takes time for these situations to stabilise. Because volatility is high, we will continue to buy and sell throughout the week until the market provides us with clear and unbiased indications (at least another month). Obviously, strong money management rules are in place.

It’s also worth noting Monday’s and Friday’s openings and closings this week to confirm or deny the existing pattern. Avoid overtrading and keep an eye out for HFT-induced volatility. Mark any gaps that may emerge throughout the week, paying special attention to those that appear on Monday.

Enjoy your trading!

 

Research provided by Giancarlo Prisco

The given data provided contains additional information, forecasts, analysis and market reviews published on the Key to Markets website.

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