DAX 40 & DOW JONES: weekly analysis 18th – 22nd December

The major US indexes have demonstrated further upward momentum this week. The market was taken aback as the Federal Reserve unexpectedly projected three rate cuts for 2024, surpassing the initial expectation of two cuts. This surprising change in stance indicates that the Fed's eagerly awaited shift towards accommodative measures has finally materialized. Simultaneously, the US economy seems to be headed for a gradual slowdown, accompanied by a deceleration in inflation. While there are indications of a slight deceleration in overall growth, it does not raise any significant concerns, given the resilient state of the job market.q

This prolonged situation continues to fuel a scenario for a more dovish Fed, which would lower US yields and the USD while stimulating demand for stocks, especially in the high-growth sector.

While the market is increasingly confident that a hard landing for the US economy will be avoided, data shows that a US recession is still a solid probability.

The economic calendar will deliver crucial macro data.

Lets start on Monday 18 December, with the German Ifo Business Climate.

On Tuesday 19 December, it will be the BoJs turn to announce its monetary policy decision. The Bank of Japan is expected to maintain its negative interest rate. The meeting comes after speculation that the BoJ could adopt a hawkish pivot sent the yen soaring to a 4-month high. However, the hawkish bets were pared back after comments from BoJ Governor Ueda, who said he was in no rush to unwind ultra lease monetary policy.

The European Union will release data on consumer inflation, as will Canada. In the United States, we will evaluate building permit figures.

On Wednesday 20 December, the People‘s Bank of China will decide on interest rates, and the UK will release the CPI. In October CPI cooled to 4.6% from 6.7% in September as energy prices fell. The market will be keen to see whether the trend is continuing, particularly after the BoE warned that the final stretch to get inflation back to 2% could be challenging. The BoE forecasts inflation remaining above 2% in 2024. Hotter-than-expected inflation would support the BoE’s view that rates must stay high for longer and could boost the pound versus the EUR and the USD, where inflation is cooling.

On the same day in Germany, we will observe the GFK Consumer Climate and the PPI. In the United States, we will assess CB consumer confidence and existing home sales levels.

On Thursday, December 21, jobless claims, quarterly GDP, and Philly Fed Indexes will be released in the USA.

On Friday 22 December, we also will see the quarterly GDP in the UK. In the United States, it will be the turn of the new home sales and the most important data of the week which is the PCE, the Feds preferred inflation gauge. Inflation in the US has been steadily cooling, and the market will be watching closely to see if this trend continues. The data comes after the Federal Reserve adopted a more dovish tone at the FOMC meeting last week, projecting three interest rate cuts in 2024, up from the two previously expected. Cooler-than-expected inflation could fuel bets that the Fed will cut rates even more aggressively next year.

Among the upcoming quarterly earnings reports, Micron Technology will release fiscal Q1 earnings on Wednesday, 20 December. Wall Street is expecting a loss per share of $1.02, marking a year-over-year decline, on higher revenue of $4.62 billion. The focus will be on guidance Micron technology is expected to have a brighter outlook for in 2024 thanks to the recovering memory chip market. The share price trades at its highest level since February 2022, ahead of the results.

Finally, we would like to remind you that heading towards the start of the holiday season, trading volumes can start to decrease, leading to less liquidity. Lower volumes and liquidity can sometimes lead to spikes in volatility and larger price swings so any kind of news can have a magnified effect on the price action. Nevertheless, the likelihood that the bullish phase will be interrupted is quite remote.

Weekly analysis and market scenarios for DAX and Dow Jones

As expected, central banks left rates unchanged, while the FED started speculating on rate cuts in 2024. In the meanwhile, the ECB is considering a potential increase in inflation. However, it is important to note that these are just forecasts, and we will need to compare them with the various macroeconomic data that will be released in the coming months.

What will happen from now on？ Will the markets continue to rise till the end of the year？ This remains our primary thesis, as seasonality, few drawdowns are expected until at least January 6th. Indeed, the month of December tends to post lows in the first week and highs in the last week and on average tend to be positive.

From the lows of the week of March 13, the rise of the international stock exchanges has been incredible. The thesis that supported a lead to a very strong climb until August 4th, the annual setup, was confirmed with almost millimeter precision. Everything occurred as we predicted, and between September 2022 and March 2023, all international markets posted their temporary lows (which could also be the ten-year lows).

Beyond the rhetoric of the debt ceiling, the recession, and the banking crisis, only a decisive 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 that were supposed to be posted in October 2022 will have a high probability of remaining so for many years. They could represent the lows of the entire decade. Despite a certain short-term overbought situation, the markets are unstoppable and will be like this 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.

The S&P500 once again touched last weeks highs, reaching our targets located at 4717 and 4780, a hundred points away from new historic highs, despite the quarterly rollovers.

The control zone is 4763-4777, and the closure above or below this level could determine new upward lunges or a corrective phase on a weekly basis.

New supports in 4732-4725 and 4707-4700 areas. Key supports in the 4680 and 4660 zone. The latter area is now considered on a weekly basis.

The 4595-4607 area became the monthly control area, closing below it could lead to a significant corrective movement.

The supports in the 4592-4582 area are confirmed, the loss of this latter zone could lead to swift corrections up to the 4562-4552 support, crucial for the ongoing upward movement.

Additional supports in area 4542-4538 and 4528-4523.

4517-4510 and 4503-4494 confirmed. The support in the 4491-4474 area is critical, and the loss of this latter area could bring steep corrections. The target is the support in the 4428 area, which is confirmed as a monthly level.

Confirmed 4411-4409, 4397, 4390-388 and 4371-4384.

4363 level is again confirmed, the breaking of this important level could lead to swift corrections towards 4334-4327, 4320-4315, 4303-4292 up to 4256, which remains a key support for the ongoing rally. Additional supports in areas 4244-4223, an overbought area, 4190-4185, and 4164-4158.

Late November support at 4138-4124 became the new monthly support. 4117 and 4100 are confirmed. Losing the latter support could lead to heavy drawdowns in the medium term.

Confirmed the supports in 3930-3905-3899, 3945-3957-3961, 3979, 3993-4000, and 4032-4043 areas. The 4064-4075 areas remain a crucial support for the whole year.

3890-3879 is still a critical area 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 reversal.

The psychological support of 3600 remains crucial. The support at 3644-3651 has halted the fall and is now the monthly support after this solid uptrend. It shouldnt be reached 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.

Protecting 4777 will push prices toward new historical highs, targeting first 4800 and then 5000-5100.

How to move？ In recent days, we observed a sideways movement and this could persist until the end of the year. The last two days of the month are expected to yield positive results. Until the 6th of January, we do not forecast any dangers but starting from this date onwards a decline of one or two months could potentially begin.

DE40 – Last week, the German index reached our first annual target in the 17000 area, and then retraced sharply during Thursday and Friday.

New supports in the 16687 area. 16623, 16594-539, and 16496-430 are confirmed.

Support at 16416-306 confirmed which becomes weekly. Only below this latter area, the Dax could begin a serious retracement.

Additional supports in the 16263-223, 16198-163 and 16132 area. These levels are great areas to look for long entries. Below 16132 prices can accelerate strongly downwards, towards the new critical support at 16025-15958.

15918-872 is confirmed, below this level, we could observe swift downward corrections with targets at the key volumetric supports of 15679-620 and 15589-533. Additional support in areas 15422-384 and 15315-252.

15130-097-070 and 15036-15000 confirmed. Monthly support in the 14935-895 area. Other supports in the 14874-801 and 14775-730 area. 14662 and 14625-590 confirmed.

Confirmed intermediate supports 14138-184, 14342, 14414-545.

Critical area in the 13814-781 zone. The loss of the volumetric zone 14069-13974 opens the gateway to the monthly support in the 13621 area.

Solid supports in areas 13692-608, 13550-516, and 13457-410. Supports 13314-333, 13331-410, 13438-467 are again confirmed.

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

Confirmed the supports in area 12808-766. From 12628 to 12766, there are a series of intermediate supports, helpful for long entry from pullbacks. 12566 becomes monthly support.

Additional critical supports are 12407-517 for the concentration of volumes. 12353-275 is the first bullish turning zone. 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 the 13 October 2022. 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.

The Dax has reached our annual target in the 16800-17000 area. New resistance in the 16740-785 and 16844-876 areas. If the prices stabilise above this area, we will aim for 17100 and then the final extension into the 17500 area.

If by the following Friday, prices remain above 16777, we could witness a chance for a continuation of a bullish movement on a monthly basis; below 16430, the trend could move firmly downwards again.

US30 – Last week, the american index crossed the crucial resistance at 36529 and reached our annual target at 37000, posting new historical highs and closing on Friday in the 37385 area.

New support levels along the entire bullish trendline from last week. 37378-253, and 37236 are the first areas to monitor. Intermediate areas: 37126-034, 36927-850, 36762-657, 36617-494, 36403-342. The latter level becomes weekly. All of these areas are excellent buying opportunities. Only the loss of the weekly support could open up to major corrections.

Confirmed 36094-36300, 36013-35872, 35813, 35717-570, 35459-370 and 35337-237. All these areas are great levels for possible long re-entries in the event of a price correction.

Supports in the 35206, 35140 and 35052-34946 areas confirmed.

34880, 34833-796 and 34717-630 confirmed which is the critical volumetric support. The loss of these supports will be due to swift corrections at target 34383-210 and 34082-33929, which becomes the new monthly support.

Confirmed 33868-811, 33767-598, 33557-457 and 33384-192. Monthly support in area 33133-057. Additional supports in area 32896-792.

New monthly support in the 32771-650 area. Critical supports was confirmed in areas 32600-524 and 32393-331.

Confirmed supports are located in two overbought areas: 31197-497 and 31536-764. Additional support areas are placed at 31753-920, 32111, and 32276. The 31861 level still remains a key one.

31036-31125 is still to be considered critical support for the monthly level. It was confirmed 30953-815, 30715-614, 30559-381, 30253-136, and 29696-29906.

The 29485 mark remains a critical one. In addition to the 29619-529 and 29338-29264, the support zones 29159-28876 and 28800-28685 are again kept. 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.

At 35620, the gap of Tuesday 2 August will be filled. Final resistance in the 35673-715 area.

Price levels reached and broke 37.000 points, establishing new record highs. The 36669 is our weekly checkpoint. Above 37373 we will look to aim for 38000 points. However, heavy drawdowns are still possible below 35960.

IMPORTANT NOTE: The market may experience moments of turmoil due to low liquidity, but without affecting the overall bullish trend. If there are no changes in sentiment and positioning, the market will quickly absorb any correction. We still expect new bullish pressures after December 27th.

Also, this week, it is wise to note Monday‘s openings and Friday’s closings 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.