The week closed sharply lower on continued fears of a recession despite better-than-expected data on the U.S. Core PCE index and European Core inflation. The G7 forum, held in Sintra, established an action plan for the energy issue by promoting increased crude oil production by OPEC countries. Finally, regarding details on the anti-spread shield, Brussels leaked that deficits from the Pandemic Emergency Plan (PEPP) will be reused to calm any rise in yields of the most vulnerable countries.
The beginning of next week will see the closure of Wall Street due to Independence Day, while in Europe, attention will be catalysed toward the Producer Price Index. Next, also in the United States, the spotlight will be on Non-Farm Payrolls and the unemployment rate, which could show the first signs of a slowdown in economic activity.
Despite the strong rebound two weeks ago and the closing of the June 13 gap, the indexes pushed down firmly from Tuesday onward, but without touching new lows. Friday’s close showed strong signs of recovery.
The scenario analysis presented in January 2022 (decline until June, recovery and return to the year’s highs by December 2022) has been faithfully followed by the stock markets. This is a crucial time because, in case of further declines, our attention will shift to the following annual setups.
Let’s keep the focus on the week of 5th July, where the annual setup of the maximum expected bearish extension is combined. From here on, we will see if the bulls will regain control of the situation for the rest of the year. The macro problems remain as well as the FED’s aggressive stance, so the market equilibrium remains very fragile. We will proceed, as always, in stages.
If the equity markets do not reverse to the upside this week, this drop could continue with truly worrying effects until October this year and then until March 2023. In the best-case scenario, a further 20 per cent may need to be added from current levels (for the S&P500 index, this means seeing the 3200-2800 area).
The S&P500 index, at the beginning of the week, reached a new high in the 3949 area, breaking down our resistance 3899-3934, and then veered sharply downward from Tuesday onward. Prices reached the 3740 area on Thursday, then pushed late Friday afternoon upward, closing in the 3825 area.
New supports in the 3808 area, 3784-3768 and 3755-3743; we will be monitoring these areas for possible pullbacks and long opportunities. Keeping in mind, however, the supports in the 3676-3647 area, a reversal of the weekly trend could be possible at the break of the 3700 area if prices accelerate back downward.
In the event of new collapses, we will add 3485 to 3576-3555 and see if the latter two levels can stop the bearish direction of the markets, at least in the medium term. Should we go further, 3200 could be the target, sought after by funds, investors and traders from halfway around the world.
The area from 3850 to 3880 represents a transition zone for prices; whether or not this area is broken will tell us whether or not Friday’s rise can continue. New resistance in the 3899-3922 and 3945-3949 areas. Seeing prices above these areas could lead to further heights. Conversely, we could have short opportunities.
Above 3939, Prices would be unimpeded until our resistance 4090-4116. Resistance 4168-162 remains.
Intermediate resistances 4073-4057, 4008-4019 and 3949. These areas will have to be studied if prices touch, to check for possible long turns or new short possibilities.
The goal remains the breakout of the resistance located in the 4200 area from where prices could stretch directly towards the critical 4285-4303 area, whose recovery will guarantee a bullish reversal on a weekly basis. Watch out for the recovery of 4168-162, which could give the first signal of upward thrust.
4313-4339, 4396, 4415-4451, and 4480 are some of the other resistances.
The resistance levels of 4506 and 4554 must be broken to reverse the slump that began in April. The 4580-4590 area must be conquered to break through the monthly obstacle set in the 4613 area.
If the weekly close above 4613 is confirmed on a monthly basis, the yearly trend could be reversed; the following objectives are 4717 and 4780.
How to move? A high should form between Monday and Tuesday, and then we should see a descent through Friday. Given the high volatility, we will always consider the possibility of scenario self-modification. If prices maintain the bullish momentum by Tuesday-Wednesday, we could assist in a Friday closure with new highs. Given the Nfp data with negative expectations, though, this hypothesis is not likely to happen.
DE40 – After approaching weekly resistance in the 13373-475 area at the beginning of the week, the Dax turned downward, breaking weekly support in the 13115 area and touching 12600. On Friday, we witnessed a strong pullback, closing just above 12900.
We place weekly support in the 12822-755 area. Should we lose this area, prices could begin a new bearish phase with the first target in the 12703-634 area, the area of last week’s lows, and then a stretch to the 12500-435 annual support. Should we also lose this area, possible extensions to 12155 and 11766, where we could see the annual reversal of the index.
On the upside, the Dax will likely touch the 13000 zone, from where a series of resistances began last week. In this area, we could see substantial declines; otherwise, we will go to test the strength of the following zones, namely 13015-075.
Above the latter, there are possibilities for strong bullish accelerations with the wide resistance zone 13217-316 as a target. Here prices could again reverse strongly.
Weekly resistance area 13373-13475 is confirmed because only above it will we have a chance for lasting rises.
13556 area confirmed. From here, it could lead to a stretch toward the Monday, June 13 gap area. With the peak of resistance in the 13721 area.
Confirmed resistance 13762-13842. Only above it, prices could post some medium-term recovery.
Subsequent resistances in the area 14003 and 14209. The following areas are dense with volume walls, so it is fair to say that if 14347 and 14440 are not recovered, the bearish pressure will still be intense. It is crucial then to reiterate the strength of 14592-545, the only area that could give an actual bullish signal if maintained on a weekly basis.
Instead, the remaining levels should be seen as control areas within the marked areas to have short pullbacks possibly.
Monthly resistance in the 14810-899 area is confirmed.
Recovery of the 15261 area first and 15380 could offer a bullish cue up to the 15570 resistance, where we will check the possibility of a new stretch to the weekly resistance 15665.
An intermediate resistance is around the 15810 mark, and new bullish strength could be found above 15944. Finally, a break of resistance 16079-16136 would offer the possibility of seeing key resistance 16230, from which to target the 16300-16500 area.
If by next Friday prices remain above 13373, we could see a chance for a bullish recovery; below 12755, on the other hand, the weekly trend may continue to push forcefully downward.
US30 – The Dow Jones index tried to break resistance in the 31785 area early in the week, then collapsed ruefully to a low in the 30488 area. On Friday, it closed in the 31115 area.
New support in the 30768 area. The area from 30715 to 30898 could offer long opportunities. Should the area be forcefully lost, prices will likely stretch to 30624-488 support again and from there, if broken, try to extend to new weekly lows.
Confirmed the last support zone in the 30334-224-122 area, the last defence before new falls.
Below 29823, chances to see new lows; the price could go for extension 29119 if it loses 29618; going beyond even this level, there is a chance of a strong rebound. Possible extensions to 28684, 28319 and 28051.
This week, a recovery of 31579-707 could ensure renewed bullish strength. As long as we don’t see this recovery, the best to hope for is the beginning of an accumulative phase. A recovery on a weekly basis of 31319 could offer a clue to new uptrends.
If prices remain above 31785-880, there would be no particular resistance until 32712-32956, with an intermediate zone in 32219-288. These areas should be monitored, as they could offer long opportunities. We will, however, keep them in mind for possible short entries in pullbacks on a weekly basis.
Our monthly attention level will be 32834. Above it, prices may stretch to 33100-33314, from which we may begin to move towards our resistance of 33509-779. The main aim is to go back to the levels seen at the start of May in the 34134 area, from where a more persistent reversal can start.
35157-34850, 34437, and 34237 resistances are confirmed.
Prices over 35599-963 on a monthly basis would signal a new positive directionality; 35157-34850 and 35614 are the levels where prices might revert to the upside or push back down. This requires that we keep a close eye on pricing at these levels.
If prices break through and maintain 36529, they may be able to reach the 37000 area if they break past the last barrier at 36786. Above 36236, we see the potential for more bullish volumetric thrusts.
IMPORTANT NOTE: The market continues to fall with too much strength and volatility, compared to slow recoveries with few points. This week we will see if recoveries will be more substantial than any declines. Otherwise, we will continue to look for selling opportunities on any bounces.
Also this week, it is wise to note Monday’s openings and Friday’s closes 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.