DAX 40 & DOW JONES: weekly analysis 24th – 28th July

Market movers

Stock exchanges maintain a bullish stance again also this week, albeit facing a slight contraction due to some disappointing quarterly earnings (Goldman Sachs, Netflix, Tesla) and for the new Nasdaq rebalancing rules.

The FED rate decision, on Wednesday evening, should be carefully monitored. At the aforementioned meeting on Wednesday, July 26, the market is almost fully pricing a 25bps rate hike by the Federal Reserve, lifting rates to 5.25%-5.5%. The dilemma here is whether this will be the end of the tightening cycle. Any hint by the Fed of a dovish position could send the dollar lower.

Thursday, 27 July, will be the turn of the ECB, which should announce a further hike of 25 bps. Even though inflation has eased to 5.5%, investors will look for clues as to whether the central bank will hike rates again in September and whether this will be the last hike.

Moving to the corporation side, the US quarterly earnings season continues.

Microsoft is expected to report its Q4 earnings on Tuesday, July 25, after hitting a new all-time high for releasing the highest-priced service for the AI universe. Management may further focus on enhancing the growth of this business segment. Additionally, updates on the Activision Blizzard acquisition will also be in focus.

Meta is expected to release earnings on Wednesday, July 26, as the stock is up 151% YTD. The focus will be on the digital Ads Business and the potential of artificial intelligence, rather than the newly launched app called Thread, as it lacks any short-term plans for monetizing the service.

Friday will be the turn of the Japan Central Bank, which could strongly affect the yen. On the same day, inflation data in Germany and the PCE core index, the data set used by the FED to gauge inflation, will also be monitored.

Analysis of the week and scenarios for DAX and Dow Jones

Since the end of March, the Dow Jones did not post two consecutive weeks so bullishly biased. Posting an 8-session streak, we just witnessed the longest rally in the equity index since 2019 and it comes as the market increasingly expects the Fed to hike rates just one more time this year.

As anticipated last week, this mighty parade of strength meant that quotation managed to accelerate upwards, casting away from the levels that had held them back up during that period. However, the American stock exchanges are now summoned to confirm the excellent rise of the last two weeks. The quotations on the daily and on the weekly time frame have reached important levels that could determine a downward reversal or an upward acceleration. The next sessions, therefore, could be decisive.

The thesis that forecasts a significant peak in the first fifteen days of August is still valid. For now, everything has happened as per our forecast, and between September 2022 and March 2023, all international markets have reached their lower levels (which could also be the ten-year 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 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 in a slight decline, after reaching a new annual high in the 4609 area, closing on Friday at 4564.

New supports in 4548 and 4538-4529. 4511-4499 area confirmed. If these mentioned levels will be lost, a major correction could begin. Next supports in area 4463-4453-4436, which is also the weekly support zone. 4429-4420 are confirmed. 4418 and 4403 are also confirmed. Other supports in area 4394 and key support in 4386-4370 area.

4368-4355 are again confirmed. Below it, downward accelerations are possible, with the first target in the 4304 mark. Confirmed the 4274-4263, and if these levels are to be trespassed, it will bring a downward acceleration toward 4249 then 4227-4223, the whole zone where volumes managed to concentrate in recent weeks.

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 supports in areas 3930-3905-3899, 3945-3957-3961, 3979, 3993-4000, 4032-4043. 4064-4075 is still a critical mark for support levels.

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 the area 4574-4579, 4590, and 4598-4605 areas. This level must be broken to see the downtrend that began in April 2022 reversed. Monthly resistance placed in the 4613 area.

A weekly closure above 4613 may guarantee a reversal of the annual trend if confirmed monthly; the next targets remain 4717 and 4780.

How to move？ Next week on Wednesday or Thursday, we will probably hear from central banks the confirmation that inflation is easing and that the tightening cycle is nearing to its end. Furthermore, growth, inflation, and interest rates are well balanced, and there seems to be no recession on the horizon. On the contrary, for years to come, the most probable scenario is moderate growth without excesses at the top or bottom of the range. This balanced outlook will be the real catalyst driving upward the upcoming market movements.

Until Tuesday, we expect indecision/bearishness which is not likely to persist beyond the early trading hours of Wednesday. From then on, there will be room for an upside potential until Friday.

DE40 – Last week, the German index moved substantially sideways, after stabilizing itself in the resistance area of 16215-160.

New supports in 16169-111, 16084, 16062, and 16020-004 area. Confirmed 15973-900, 15814-749, 15631, and the weekly support 15596-439. Supports in 15439, 15368-308, and 15287-247 areas 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.

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

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

New critical zone in area 13814-781. 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.

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 Oct 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 area 16206-184. Confirmed resistance in areas 16230-280 (weekly) and 16320-408. The break of 16408 would open up to further rises toward the final annual target located in the 16500 area. Beyond this, we could witness an attack on the 16700-17000 area.

If by the following Friday, prices remain above 16194, we could witness a chance for a continuation of a bullish movement on a monthly basis; below 15771, the trend will move strongly downwards again.