DAX 40 & DOW JONES: weekly analysis 10th – 14th July

Market movers

Stock markets are under pressure after a substantial rise and some profit-taking patterns.

This week all the macro data that could vary expectations on the next decisions of the central banks should be monitored carefully.

The most significant data set in Europe is the ZEW index in Germany.

In the United States, June data on consumer price trends will be released on Wednesday. This data will be crucial in understanding and predicting the Federal Reserves next moves at the July 26 meeting.

Moving to the corporation side the US quarterly earnings season is set to begin.

Thursday will be released Pepsis Q2 data. On Friday will be the turn for UnitedHealth and the big players in the finance sector such as JPMorgan Chase, Wells Fargo, Blackrock, and Citigroup.

Weekly analysis and market scenarios for DAX and Dow Jones

The previous week, after we mentioned a bullish signal to be confirmed, the US stock exchanges failed to break upwardly and remain once again clung to the support levels in an attempt to avoid an inverting downward slip. For many months, the prices did not have the stamina to accelerate upwards but retain only the strength to remain above the supports, leaving a chance of reviving a bullish lunge.

At the moment of writing, the thesis that forecast a significant peak within the first fifteen days of August is still valid. At the beginning of the week, we will monitor the behaviour of price action to understand if prices will manage to immediately turn upwards or if we will witness a possible correction of just 5%-7%.

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 more than 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 wont 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 2022 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.

It has been 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 changed the course strongly downwards, after trying to breach the previous years peaks and closing on our support located in the 4424-4418 area.

New supports in areas 4450 -4444- 4436, 4429-4420. 4418 and 4403 are well confirmed. Other supports are in the 4394 area and the weekly support is placed in the 4386-4370 area.

4368-4355 are again confirmed. Below it, downward accelerations are possible, with the first target in the 4304 mark. Confirmed the 4274-4263, and if these levels are to be trespassed, it will bring a downward acceleration toward 4249 then 4227-4223, the whole zone where volumes managed to concentrate in recent weeks.

Below 4223, there are high chances for further drawdowns targeting the supports at 4204 and 4196-4190. 4177-4170 becomes a new critical mark.

Confirmed the supports in 4153, 4144-4140, 4124-4117, 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 still a critical mark for support levels.

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

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

Confirmed supports in 3669, 3680-3689-3701, 3711-3726-3733 areas.

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 solid uptrend. It shouldnt 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 monitor 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.

New resistances in 4460, 4474, and 4483-4489 areas which are also the weekly levels. The 4494 has been recovered through strength and volume and will probably open up the gateway to new yearly peaks.

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 placed in the 4613 area.

A weekly closure above 4613 may guarantee a reversal of the annual trend if confirmed every month; the next targets remain 4717 and 4780.

How to move？ Confirming that the long-period probabilities do not face any threats, on Friday prices managed to close at the lowest mark of the day. At this point, we believe it will be possible that in the next few days, on Monday or Tuesday, we could witness another short-term retracement if prices do not veer strongly upwards. In that case, we should witness further bullish strength until the last week of July.

DE40 – Last week the German index posted a violent collapse, after leaving the key area at 16163-094. Prices managed to touch levels not seen since mid-March, namely the support of 15439, after breaking down the weekly support at 15733-687.

New supports in 15601-15473 areas. Supports in areas 15439, 15368-308, and 15287-247 are all 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.

Supports in areas 14957-14844 and 14737-603 are all confirmed. This area becomes the weekly level for new upward movements or heavy drawdowns.

Confirmed intermediate supports 14138-184, 14342, 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 FEDs 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.

Confirmed volumetric supports in areas 12865, 12833-12909, 12978-13038, 13113-178, 13222-280, 13307-357.

Supports 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.Confirmed support in areas 12223 and 12136.

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; with extensions to 11650 and 11542 below it. The 11095 mark could be a target in case of a massive sell-off. These levels can be considered annual reversal points.

New resistances in 16215-165, 16110-039, 15988-906 areas. The weekly restoration of these zones opens up the gateway to a new uptrend. Intermediate resistance in the 15861-742 zone.

Confirmed resistance in the 16230-280 (weekly) and 16320-408 areas. The break of 16408 would open up further rises toward the final annual target located in the 16500 area. Beyond this, we could witness an attack on the 16700-17000 area.

If by the following Friday, prices remain above 16110, we can witness a chance for a continuation of a bullish movement on a monthly basis; below 15594, the trend will move strongly downwards again.