DAX 40 & DOW JONES: weekly analysis 8th – 12th May

Market movers

The DAX 40, or DAX Index, is a German stock market index comprising the 40 biggest companies - by market capitalization and liquidity - trading on the Frankfurt Stock Exchange (FSE). The DAX 40 is considered a strong measure of German and European economic health. View the chart for real-time information on the DAX price, and follow the latest DAX news, analysis and forecasts.

The market closed this week with stocks rising after a week due to activity in the options markets and the investors keep holding too many positions on the bullish-biased side.

The Fed and the ECB hiked rates by 25 points. However, Fed Chairman Jerome Powell declared that the central bank could suspend rate hikes but then added a comment that if there will be new hikesrough, those will be undertaken depending on macroeconomic trends. Furthermore, updates on the crisis in the banking sector could be another factor to monitor for more hikes to come.

This week the main focus for traders will be US inflation data that will be released on Wednesday, along with Chinese and German data.

On Thursday, May 11, the BoE will hold a meeting and is expected to hike rates once again but this time will be a close call.

The Earning season will continue to deliver new reports, with Disney announcing earnings for Q2 on Wednesday, May 10.

Weekly analysis and market scenarios for DAX and Dow Jones

After four negative sessions in a row, US stock markets are reacting firmly, trying to avoid the worst scenario. However, much stayed the same compared to the previous week. Wall Street finds itself in a rather bizarre situation. Wall Street is basically failing to take off, but when tested by bears, it reacted bitterly by throwing them out. 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 la, the more violent the subsequent directional movement will be.

The medium-term trend is still bullish. Usually, before breaking critical medium-term resistance levels, the markets initially give space to a corrective movement of several percentage points. Then markets follow and do not breach those levels, next pretend to break the supports during the contraction session, and unexpectedly markets will tend to move upward strongly.

These events could have already happened during the closing session on Friday. 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 seasonalitys which will deliver upward lunges until August. Last week‘s lows could match with the current month’s lows.

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 ts,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 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 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 attacked our monthly resistance in the 4182-4202 area again, without trespassing it. After assaulting the weekly support in the 4064-4073 area, the prices closed halfway in between the minimum and the weekly maximum in the 4149 area.

New supports are placed in the 4144, 4140-4132, and 4126 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 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 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 22 August 2022 in the 4221- 230 and 4258 area.

New resistances are placed in the 4149-4160, 4170, 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 believe that prices will continue their steady upward movement this week. Only a heavy sell-off and the breakouts of the weekly support levels will be able to reverse the trend. Its crucial to monitor the inflation data that will be released on Thursday.

DE40 – This week, the German index reached new annual peaks in the 16043 area. After a nosedive movement of 300 points circa, prices closed on Friday very close to these highs but also in proximity to our target in the 16076 area.

New supports in area 15953-886, 15859-825, and 15733-687, which become 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 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.

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.

The break of the resistance 16076-16136 could offer the chance to witness the key resistance 16230, from where it could be trying to reach the 16300-16500 zone.

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 to lightly the monthly resistance located in the 34143 area and then turned strongly downwards, posting large volumetric gaps in both directions.

New supports in 33646-610, 33368-286, 33241-183, uch33105-021 areas. Except for the first level, the others can be easily breached. Weekly support in e32971 zone.

Other supports in the following areas: 32499-610, 32645-755. Both are the foundations for this new uptrend. Following supports levels 32801-875, 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 remain 34143 and 34192; from here we could witness vertical thrust. New resistances in 33646-786 area (the most important to overcome), 33840-898, 34000-048, and 34130-203. Confirmed the resistances in 34330, 34498, 34607-706, and 34801-34950 areas 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.