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Giancarlo Prisco Market Strategist
Analysis, Weekly Market Updates | August 8, 2022

DAX40 & DOW JONES: weekly analysis 8th – 12th August

Market movers

The week ended positively for equity markets thanks to the excellent quarterly reports released in the US and Europe. Friday’s non-farm payroll data showed a healthy US labour market that may support further interest rate hikes by the Federal Reserve.

Next week will be very poor in macroeconomic data of particular relevance. The most interesting figures will be those related to inflation. Expectations are for a slight slowdown in US consumer price growth, a likely first sign that the Federal Reserve’s moves are beginning to cool the economy.

Weekly analysis and market scenarios for DAX and Dow Jones

Next week could be a bullish week for the markets. For the time being, the 5 July setup has fulfilled its task, changing the trend from bearish to bullish.

As much as the June low could be considered the annual low, we need monthly closes on the indexes much higher than the current ones to confirm that we have escaped the doldrums. In the case of the S&P500 index, we are talking about 4200 points. In the eyes of the investors, this could potentially signify the return to a bullish phase. In the meantime, a settlement of prices to higher values than June could be the first confirmation. If prices approach 4200 points without stabilising above that level, the risk of seeing a new bearish phase remains very high.

Between now and then, we will see if the bulls will regain control of the situation for the rest of the year. Macro problems remain as well as the FED’s aggressive stance, so the balance of markets remains very fragile. As always, we will proceed step by step and analyse price movements in the annual setup of mid-August and mid-October.

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 20 % from current levels (for the S&P500 index means seeing the 3200-2800 area).

If, instead, the global stock market carried on rising from the current lows (50% America, 30% Europe, 20% Asia, and emerging countries), we may see 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? It is hard to say, and investors are waiting to understand better to see if the lows are truly behind us.

The S&P index closed the week around 4141 points, reaching the resistance area around 4168-162 on Thursday.

New intermediate supports in the 4125-4118, 4109-4086 area, and confirmed support around 4073-4054 e 4010-4000. Weekly support in the 4073-4054 area. Key support area at 3982-3960. Weekly reversal confirmed below 3920.

Confirmed supports in the 3875 area, 3905-3909. 3875 is critical. Below this level, bearish pressure may materialise. Further levels are 3832-3826, 3805 (psychological support area), 3769-3752 and 3730. We will monitor these levels for potential new long opportunities. However, keeping in mind the volumetric supports in the 3769-3752 and 3730 areas, a reversal of the monthly trend could be possible at the break of the 3700 area if prices accelerate back below 3711.

On the other hand, if there are downward spikes, 3576-3555 and 3485 may be essential support zones in the medium term holding off bearish momentum. If ranges don’t hold, we may see 3200. Many investors are looking with great attention at this level.

Confirmed resistances in the 4180 area.

The target remains the break of resistance located in the 4200 area from where prices could stretch directly toward the critical 4285-4303 area, which recovery will ensure a bullish reversal on a monthly basis. Recovery of 4168-162 could give the first signal of upward momentum.

Further resistances: 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 try to breathe 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 play this scenario? On a monthly basis, we will wait for the mid-August setup to see if there will be a bullish reversal. On a weekly basis, a sideways trend between Monday and Tuesday and a high on Friday is expected. We could see a retracement between Wednesday and Thursday. On Monday, there is the probability of a slightly down/sideways trend till the end of the session. It is advisable in any case to monitor support and resistance levels to follow the price trend best.

DE40 – The Dax, at the beginning of the week, managed to stay within the area of the last weekly purchases around 13446-13219, negating any bearish possibilities. The index closed the 13 June gap in the 13721 area and closed the week at 13602.

The weekly support is situated in the 13260-13186 area. The area has seen a lot of buying activity and maintains a solid volumetric concentration. Below this, prices could start a new bearish phase with a target in the 13082-13113, 12955-819, 12755, 12681-647 and 12536-434 area, the area of strong buying four weeks ago and annual support. Should this be broken, we may see the index extend downwards to 12155 and 11766, inverting the yearly trend.

The 12991 and 13219 could be important levels to watch and better understand pullbacks and the direction of the index itself.

The 13452-13509 area is the last weekly buying zone. Intermediate supports at 13385-310. Only below this area could we see more substantial declines.

Confirmed resistance 13762-13842 which becomes weekly. 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 14592-15545 area may be the only indicator of a more bullish phase.

The further 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.

Intermediate resistance lies around 15810, with a new bullish force only above 15944. Levels 16300 and 16500 can be approached if the key resistance area of 16079-16136 and 16230 are surpassed.

At the week’s close, if the price stays higher than 13310, we may see a bullish month. Below the 13082 area, instead, the trend will mostly be bearish.

US30 – The Dow Jones index maintained the 32174-32319 area, providing upward pressure on prices but without new all-time highs, with the weekly closing in the 32799 area.

New weekly support in the 32537 area. The 32198 and 31973-31716 areas have seen strong buying activity, and losing them could lead to 31363-279 and 31134-30986, which could offer excellent long opportunities. Key levels are situated in the 31327 and 30911 areas. Should the levels be lost strongly, we will attack the new support 30766-690 and, in case of a break, towards the weekly lows 30436-30122, where many purchases have been concentrated. The 30436 level constitutes the strong point of this uptrend.

The last support zone in the 30224-122 area was confirmed.

Below 29823, there are possibilities of seeing lower lows; the index may reach down to 29119 if 29618 doesn’t offer enough support. If we go further than this, we may see downward extensions towards 28684, 28319, and 28051.

32474-32638 constitute the intermediate zone of this uptrend and should be maintained. It will be important not to lose the 32714-32864 area. This zone guarantees upward pressure.

32834 is our critical monthly level. Above it, we may see extensions to 33100-33314 and the new resistance area 33509-33779. This inversion could be more consistent if May levels around 34134 are achieved.

Resistance levels can be confirmed at areas 35157-34850, 34437, and 34237.

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.

If the index moves across 36529 and stays there, we could envisage 37000. It would need to surpass resistance at 36786. Above 36236, we may see a concentration of volumes leading to bullish bursts.

IMPORTANT NOTE: Even if the market has correctly respected our setup, a pullback should be seen. This week we will try to see if the US inflation figure can be an opportunity for a pullback. Attention will need to be paid to the August 16 setup.

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.

Happy trading!

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