DAX 40 & DOW JONES: weekly analysis 29th May – 2nd June

Market movers

The week ends with the stock exchanges strongly biased upwards, thanks to Nvidia‘s quarterly earnings, which brought back optimism in the markets. Despite some negative events, such as Germany entering a recession or the contradictory macro data in the USA, the market is anticipating the end of the FED’s tightening cycle and therefore it is positioning itself in accordance with it.

This week will be crucial for the release of some macroeconomic data.

• On Monday, US markets are closed for the Memorial Day holiday.

• Salesforce, HP, Broadcom, Macys, and Dell Technologies will declare quarterly earnings reports.

• On Tuesday, the Home Price Index and the Case-Shiller National Home Price Index will be released.

Also, the labour market will be monitored. April‘s Job Openings and Labor Turnover Survey (JOLTS), the ADP’s National Employment Report, and the Nonfarm-Payrolls of May will provide additional insights into the future manoeuvres of the Fed, as it is approaching the 14 June meeting.

Similarly, we will get updates on inflation and unemployment in the Eurozone.

On the stock market side, the frenzy of trading volumes in tech stocks such as Nvidia, AMD, Microsoft, and Palantir Technologies should be monitored for the enthusiasm related to artificial intelligence.

Weekly analysis and market scenarios for DAX and Dow Jones

The Bullish strength in the markets continues as the US debt ceiling deal seems closer. Despite doubts and confusion cried out by many market analysts, nothing has changed.

The medium-term trend is still bullish. The indexes are posting new annual highs (such as the Nasdaq) and these new highs are the confirmation of the solid continuation of the current bullish movement. This bullish movement will take place thanks to the seasonality, which will deliver upward lunges until August.

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 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 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 usual, we will confirm the annual forecast from time to time.

Last week the S&P500 was boosted strongly upwards. Prices posted the closure in the 4219 area, near the gap of 22 August 2022 in the 4221-230 area.

New supports in area 4214, 4206-4201, 4196-4184, 4170,4153, 4144-4140, 4124-4117 (new weekly support). Supports in 4100 area confirmed. 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 located in the 3822-3814 area.

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 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 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.

The closure of the gap on 22 August 2022 in the 4221-230 area will open the gates to new bullish lunges; the first target to monitor is the 4258 mark.

Resistances were confirmed in the 4293-308 level. Other resistances are placed in the 4313-4339, 4396, 4415-4451, and 4480 areas.

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 strongly believe that prices will continue their steady upward movement also this week if the weekly support levels manage to hold. Only a heavy sell-off and the breakouts of the weekly support levels will be able to reverse the trend. It will be necessary to monitor the key data that will be released on Friday.

DE40 – Last week, the German index suffered a heavy sell-off due to the recessionary stalemate in the country. Prices reached key support in the 15733-687 area and then closed around 16000 points.

New supports in 15937,15861-835 and 15785 areas. The weekly support is in the 15733-687 area. Support levels 15657-603, 15652, and 15538-510 confirmed. Below the latter level, prices can create a robust downward acceleration. On the other hand, if those levels wont trespass, we could witness an important restoration in price levels.

Supports in areas 15439, 15368-308, 15287-247 are confirmed and 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 are 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; 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 seen as annual reversal points.

New resistances are placed in the 15989-16050 and 16121-237 levels. The break of 16327 would open to further upward lunges toward the final target in the 16500 area.

If by the following Friday, prices stay above 16050, we can witness a chance for a continuation of a bullish movement on a monthly basis; below 15835, the trend will move strongly downwards again.

US30 – Last week, the Dow Jones broke the weekly support located in the 32971 zone, due to the strong positioning of traders in the technology sector. Prices reached the 32645-755 area and then managed to close just above 33000 points.

New supports are located in the 33117-32945 area. This area marks the new weekly support. Underneath this level, there is a high probability of new bearish accelerations. Other supports in 32804 and 32702 areas.

Other supports in the following areas: 32499-632, the loss of which could lead to a monthly trend reversal. Next supports: 32801-875, 33945-990.

Confirmed supports are placed in two well-bought areas: 31197-497 and 31536-764. Other support areas are placed at 31753-920, 32111. The 31861 level remains a key one.

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 are 34143 and 34192; we could witness vertical thrust from here. New resistances in area 33242-324, 33386, 33443-498 and 33565-646 confirmed. Weekly resistance was confirmed at 33662-786 (the most important to overcome), 33840-898, 34000-048, and 34130-203. Confirmed the resistances in areas 34330, 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. 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.