DAX 40 & DOW JONES: Weekly analysis 4th – 8th Semptember

Market movers

In the previous week, a variety of macroeconomic indicators provoked interest among investors. This is due to their anticipation of the termination of the Federal Reserve's (FED) policy tightening, possibly suspending rate hikes come September, and the potential for rate reductions before the year's conclusion.

On Monday, American stock exchanges will be closed for Labor Day.

The coming week will unveil some macroeconomic data of a certain degree of interest.

The decision on the RBA rate will be announced on Tuesday, 5th September. It is widely anticipated that the RBA will maintain the interest rates at 4.1%. This will mark the third successive meeting with unchanged rates. This would also be the final meeting overseen by the RBA Governor Philip Lowe, preceding the end of his tenure.

The US ISM Non-Manufacturing Index is due to be released on Wednesday. Additionally, the BOC will release its interest rate decisions. At the latest meeting, the BoC raised interest rates by 25bps to 4.75%, amid fears of inflation persistently above 2%.

On Thursday, the European Union is going to publish the annual GDP data, while the United States will publish initial jobless claims data.

Germany is set to release inflation data on Friday, which could show a slight reduction. Additionally, on Friday, Japan will release its GDP data.

Chinese data will dominate market news headlines throughout the week, ranging from the PMI data to inflation figures. Concerns over the health of the Chinese economy have been gaining traction in recent weeks as data worsens and as the property sector shows more signs of weakness. Its worth noting that we cannot exclude additional monetary stimulus measures from the Chinese Central Bank.

Furthermore, speeches from Lagarde and various members of the FED could bring volatility into the market.

Weekly analysis and market scenarios for DAX and Dow Jones

Following a two-week sequence of falling to new lows, the Dow Jones ended on an upswing. When the prices hit pivotal points, a response was instigated that mitigated additional decline. Nevertheless, if the US stock markets manage to distance themselves from the precipice, there may be risks ahead. In particular, the anticipated shift towards bullish trends has not yet been firmly established, at least not in the short term. Conversely, observed from a medium or long-term perspective, the upward bias in the trend has persisted in spite of the recent bearish fortnight.

The U.S. employment data released on Friday does not seem to be “signaling” a recession. We still believe that the economy will face a soft landing, which could lead to further rate hikes. On the other hand, if inflation continues to cool down, it could prevent the Fed from making more aggressive moves. Well closely monitor the developments in the coming weeks.

From the lows of the week of March 13, the rise of the international stock markets 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 lows for the moment (which could also be the ten-year lows).

The bearish swing observed last week could lead to a drawdown of at least 7/10% from the pre-crisis peak. Currently, the trajectory appears to align with the previously mentioned scenario, and it is crucial to closely monitor its evolution. The upcoming key dates are at the end of the month, and it will be important to observe whether we will reach the monthly low next week.

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 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.

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 closed significantly higher, after attempting to test the resistance located in the 4550 area and closing on Friday in the 4519 area.

New supports in the 4509-4506, 4501, and 4490 areas. The latter is particularly important because breaking it could lead to steep declines. Other supports in the area 4479-4470, 4462, 4454-4439, and 4432-4425, the level from where last weeks rise started.

Confirmed 4409-4398-4387 and 4370-4355, which both become weekly. Below it, downward accelerations are possible, with the first target in the 4304 mark and filling the gap of mid-June. Confirmed the 4274-4263, and if these levels are to have trespassed, it will bring a downward acceleration toward 4249, then 4227-4223, the whole zone where volumes managed to concentrate for the upward lunge of end June.

Below 4223, there are high chances for further drawdowns targeting the supports at 4204 and 4196-4190. 4177-4170 is still a 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 the supports in 3930-3905-3899, 3945-3957-3961, 3979, 3993-4000, and 4032-4043 areas. The 4064-4075 areas remain a crucial support.

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. The support at 3644-3651 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 4521-4534 and 4538-4545 areas. Confirmed the key resistance in the 4550 area, which becomes weekly. Other resistances in the 4564, 4575-4580 areas, and the resistance that offers a new bullish lunge are in the 4595-4607 area. Confirmed resistances 4617-4622 and 4629-4632.

The upside targets are still 4662 and 4680, beyond which important resistance levels must be overcome before reaching new all-time highs.

The weekly closure above 4613 guarantees the annual trend reversal if confirmed on a monthly basis; the following targets remain 4717 and 4780.

How to move？ Prices are stagnating beneath crucial resistance levels and next week, we could witness a potential new bullish lunge. Everything is still on the table. The most critical date in September will be the 29th.

DE40 – Last week the German index put up with some bullish pressure, reaching the weekly resistance located in the 15983-16024 area. The Dax closed on Friday in the 15850 area.

New supports in areas 15758-725 and 15710-675. 15637-554 and 15490-439 are confirmed. Followed by 15152-196, 15247-287 and 15308-368 (weekly). These zones represent the strength of the yearly bullish strength and must be maintained for the movement to continue.

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

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 way to monthly support in the 13621 area.

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

Other key supports are 12407-517, for the concentration of volumes, and 12353-275, 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 October 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 15830-889 and 15912-970 area. The recovery of these areas could lead to vertical bounces paired with the break of 15983-16024.

16054-104 confirmed and became new weekly support. Breaking these levels could lead to a fast rebound up to key resistance at 16225-253, where Tuesdays 2 August gap will be filled. Additional resistances in the 16272-335 area, the breaking of which could lead to the annual highs in the 16517-475 area.

If by the following Friday, prices remain above 16104, we could witness a chance for a continuation of a bullish movement on a monthly basis; below 15675, the trend will move strongly downwards again.

rebound. Other resistances in the 35166 and 35273-378-444 area.

35539-591 confirmed. At 35620, the gap of August 2nd will be filled. Final resistance in area 35673-715.

The break of this monthly resistance zone opens the gateway to the 36068 weekly target.

Monthly positioning of the price above 35599-963 could offer a new bullish direction on a yearly basis. A movement that will go through 36529, managing to keep this level, would offer the possibility of reaching the 37000 area if prices forcefully break the last resistance placed in the 36786 area. Above 36236, we keep the possibility of further volumetric upward thrusts.

Essential Information: The market has managed to recover some crucial weekly resistance levels. Typically, we see a significant market pullback in early September, so we can anticipate witnessing more price rebounds. It's crucial to note that a leap in market volatility can force prices to drop dramatically; therefore, we will continue to short the equity markets. This week, it's important to pay attention to how markets open on Monday and close on Friday to either confirm or refute the present trend. Steer clear of excessive trading and remain alert to volatility triggered by High-Frequency Trading systems. Also, ensure to flag any price gaps that might emerge during the week, especially on Monday.

Enjoy your trading!