DAX 40 & DOW JONES: weekly analysis 6th – 10th March

Stocks sold off sharply Tuesday after comments from Federal Reserve Chair Jerome Powell suggested that rates may need to go higher for longer, fueling fears of a potentially larger hike at the central banks next policy meeting.

On Friday, however, Atlanta Federal Reserve member Raphael Bostic reassured traders by reaffirming that hikes by the US central bank will have to be limited to 25 basis points to moderate further economic risks.

The reaction to the comment was immediate, resulting in a vertical rise in the stock markets.

This week investors will focus on the monetary policy decisions of the RBA, BoC and BoJ, which will announce their policies on interest rates.

In addition to these events, there will also be released some macroeconomic data, including data from the S&P Global Construction PMI survey, Eurozone retail sales and US Non-Farm Payrolls.

The Dow Jones Industrial Average shed 574.98 points, or 1.72%, to end at 32,856.46. The S&P 500 lost 1.53% to close at 3,986.37 and below the 4,000 level. The Nasdaq Composite dropped 1.25% to settle at 11,530.33.

As the major stock indexes fell, the 2-year Treasury yield jumped to its highest level since 2007 at 5%. Tuesdays selloff brings the Dow into negative territory for 2023, down about 0.9%. The S&P and Nasdaq are up about 3.8% and 10.2%, respectively, for the year.

Weekly analysis and market scenarios for DAX and Dow Jones

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.

Earlier As we witnessed such bullish movements on Wall Street was at the end of January. Therefore, there are signs of recovery from the American stock markets side. However, the whole scenario is still marked by uncertainty, mainly due to the possible further tightening by the Fed.

Wall Street investors are finding out that traditional defensive stocks that managed to avoid last years crash, such as consumer staples, utilities and healthcare, may no longer be immune this time in the event of a market crash.

The finger is pointed to inflationary pressures and interest rates and their effects on the economic cycle. Will they lead to a deep recession or a soft landing？ We believe in the second hypothesis since the predictive and coincident data already point out this direction.

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.

During the weekend, the equity markets managed to deliver some bullish signals. If this positive momentum is confirmed this week, we will wait for a move higher until the next setup will be displayed in the first week of April. As usual, we will proceed step by step and always monitor both supports and resistances.

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, 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 index experienced an intense recovery last week, breaking down the support in the 4060 area and closing Friday on the resistance level of 4050-4060. While the move could be perceived as a typical “hunting stop”, the strength of the movement could also push prices back above previous highs.

If this week the prices will remain above 4144, the weekly resistance, the index could continue to look for bullish targets for monthly reversal, in other words, above 4182-4202, the gap filled the 22 August 2022 in the 4221-230 and 4258 areas.

New supports in the 4050, 4029, 4017-3999, 3974 and 3951-3932 areas, which constitute the new weekly support. These levels are ideal for intraday and multiday buying. 3925-3911-3902 remains a crucial support area. Confirmed 3893-3887, 3863 and 3834-3844. Critical support in the 3808-3798 area, 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 see a new trend inversion.

The psychological support of 3600 remains crucial. Support around 3644-3651 points has halted the fall and is now the monthly support after this strong uptrend. Prices should not return around that area again to avoid new heavy bearish pressure. Below it, the 3607 level, then again the 3557-3547, 3538-3524 and 3514-3507 are supports levels. The 3485 support is now the annual, key 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.

There are new resistances placed in the 4071, 4084 and 4097 areas. These levels can be easily crossed if there will be enough pressure from prices.

Along with resistance 4144, without whose recovery the index will not turn bullish on a weekly basis, prices formed significant walls in the 4141-4135-4125 and 4113-4109-4100 areas, ideal levels to look for new short entries.

We can find confirmed resistances in the 4258 and 4393-308 areas. Other resistances are around 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 2020 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 on a monthly basis; the following targets remain 4717 and 4780.

How to move？ This week we will have to check whether or not, between Monday and Tuesday, prices will restart to the upside. Otherwise, we could have a bearish continuation. It will be vital to correctly check the indicated supports and resistances to follow the price trend.

DE40 – The index recovered remarkably this week, closing not far from the resistance 15583-659, leading towards new yearly highs.

New supports in the 15347-309-251 area. This zone created the foundation of volumes for this weeks uptrend. Intermediate support at 15477-517.

Supports 15202-114 and 15086-035 confirmed. The 14967 zone has once again confirmed the validity of this critical supportive zone, which remains weekly. 14939-14916 and 14814-712 are confirmed.

Intermediate supports 14138-184, 14342 and 14414-538. The monthly resistance around 14810-899 has been broken down, so the Dax may start a medium-term reversal.

New key zone in the 13814-781 area. The loss of the volume zone 14069-13974 opens the way to the monthly support in the 13621 area.

Monthly support in the 13621 area. The Dax left a huge volumetric gap after the FEDs inflation figures, which was 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 looking for long pullback entries. 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 supports are in the 11875-11950-12024 area, 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.

Resistance 15583-659 is confirmed, which we add and modify at 15554-659, to include last weeks volumetric zones. Confirmed weekly resistance at 15665.

An intermediate resistance is around 15810, with a new bullish strength only above 15944. Finally, a break of the resistance area around 16079-16136 would offer the possibility of a stretch toward the critical resistance 16230, from which to target the 16300-16500 zone.

If by next Friday prices remain above 15266, we will see a possibility of a bullish continuation on a monthly basis; below 14989, on the other hand, the trend may push forcefully downwards.

US30 – The Dow Jones index posted a week of an intense rebound, closing the week near the critical resistance 33504-633.

Confirmed supports placed in two well-bought areas: 31197-497 and 31536-764. The 32000 area is the psychological support. Other support areas are 31885-32064, 32118-211 and 32254-316, which are excellent for buying opportunities.

Confirmed support areas 32415-360, 32546 and the new support in 32608-646 area. The new weekly support in 32797 areas. Other supports in 32715-884 areas, the foundations for last weeks rise, and 33093-33194.

The zone of 31036-31125 offered a new upward price turn. Confirmed support around 30953-815, 30715-614, 30559-381, 30253-136 and 29696-29906.

The 29485 mark remains an important level. In addition to the 29619-529 and 29338-29264, the support zones 29159-28876 and 28800-28685 are well confirmed. These are all excellent supports to look for long opportunities. Should they all be pierced to the downside, prices could move toward 28319, 28051, 27765, and 27019 in extension.

Prices formed new resistances in the 33315-454 area, one of the most difficult to break. Other resistances in 33504-633, 33727 and 33777-852 areas. Confirmed 33890, 33981-34033 and 34203-34330. A key area is 34143, which will be our weekly resistance. Confirmed the resistances in areas 34498, 34607-706, and 34801-34950, 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. Observing this area is extremely important.

A move through 36529 and holding that level would offer the possibility of 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.

POINT TO NOTE:

The movement upwards has regained strength; we just have to follow the ongoing movement. However, if there is no break out of key resistance levels, any bullish attempt will be denied, so we will be monitoring the quarterly deadlines and the next meeting of the Fed.

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.