#INDICES ANALYSIS: #DAX30,#SP500,#CAC40 (19 MAY 2022)
DAX Forecast: Pullback from Resistance Barrier
We have been in a downtrend for quite some time so it makes sense that we would see a continuation.
The German DAX index broke down significantly on Wednesday as the €14,250 level continues to offer significant resistance. This is an area where we have seen selling pressure previously, so it is not a huge surprise to see that we had pulled back. Furthermore, the 50-day EMA has been resistant as well, so it all ties together quite nicely.
What is also worth noticing is that we close at the bottom of the candlestick, and it suggests that we are going to see even more selling pressure. Typically, when a candlestick closes at the very bottom of the daily range, there is a bit of follow-through. At this point, I am looking for a move down to the €13,500 level over the next several candlesticks, and I believe that short-term rallies will probably be sold into at the first signs of exhaustion. The DAX is the main index for the European Union, so you need to understand that it is a great proxy for the entire region. It is the first place that money goes flying to, and it tends to lead the rest of the indices either higher or lower.
That being said, if the situation gets worse in the European Union, other indices will get sold rather hard. On the other hand, if we start to see a bit of a turnaround, the DAX is the first place that people put money to so it is also the first place that people start to see a rally. At this point, it is likely that we will continue to see the global economic situation have a part to play as well, as Germany is such a major exporter. In fact, most of the major movers of the DAX index are multinational exporters, so they cannot escape what we may find in other parts of the world.
Regardless, we have been in a downtrend for quite some time so it makes sense that we would see a continuation. Indices around the world have been hammered, and for what it is worth, American indices sold into the close, so that typically means that the Europeans will take their cue from that as well. I do not see a turnaround happening, but if we broke above the €14,250 level, we would more likely than not be a very bullish move.
CAC Forecast: Index Pulls Back from 50-Day EMA
Keep in mind that the CAC will follow right along with the other indices around the world, as correlations are running one-to-one when it comes to all risk assets.
The Parisian CAC pulled back rather significantly on Wednesday as we had approached the 50-day EMA, and then pulled back rather drastically. In fact, the European indices have struggled drastically as we continue to see a lot of concern when it comes to the global economy. The French index is highly levered to the luxury markets, which are going to struggle in this type of environment.
When you look at the chart, you can see that we have been selling off drastically from the 50-day EMA every time we reach it, and I think we are going to continue seeing a lot of downward pressure. The fact that we are closing at the bottom of the candlestick suggests that we are going to get a bit of follow-through, so I would anticipate that the market is going to look to the €6200 level, possibly even down to the €6100 level. We have had a significant rally lately, but at this point, it is only a matter of time before the overall trend takes over, so it makes sense that we would drift lower.
The alternate scenario is that buyers take out the 50-day EMA on a daily close, or perhaps even take out the €6500 level. If that were to happen, then the 200-day EMA would be targeted next, which is sitting just below the €6600 level. The size of the candlestick essentially wiped out the gains from the last couple of days, so that does suggest that we have plenty of downward momentum. Keep in mind that the CAC will follow right along with the other indices around the world, as correlations are running one-to-one when it comes to all risk assets.
If we break down below the €6000 level, then we could see the bottom fall out of this market, but you would probably see that appear initially in other markets, with the CAC following. Keep an eye on some of the smaller indices in the European Union, because they could lead the CAC and other major indices lower as money continues to flow out of risk appetite. Even a falling euro could be a clue at this point, as it seems like money is all running in one direction, and that seems to be the US dollar.
S&P 500 Forecast: Index Gets Obliterated on Wednesday
3850 is a real potential target at this point, opening up the possibility of even further downward pressure going forward.
The S&P 500 pulled back rather drastically on Wednesday as the negative pressure continues to be drastic. The markets are finally coming to grips with the idea that the Federal Reserve is not there to save them. It has been quite a ride, but at this point, we look ready to meltdown. Ultimately, if we break down below the hammer from last week, that opens up the floor for significant downward pressure. The S&P 500 has a lot of risks built into it, and I think it is likely that we will continue to see people bail on the markets.
Any rally at this point will be looked at with suspicion, as the earnings season is starting to look rather ugly for retailers, which suggests that the consumer is not going to be there to bail things out. Without the ability to drum up a narrative, this suggests that Wall Street has a lot of pain ahead of it. The size of the candlestick is rather impressive, and I think we will probably have some follow-through. Any rally at this point in time is an invitation to start shorting again.
Whether or not we can find buyers is a completely different question, because you would have to be very brave to get involved at this point. In fact, we need to break above the top of the candlestick to even think about the idea of buying. That being said, these types of candlesticks almost never happen in a vacuum, so I would anticipate quite a bit of follow-through. It is also worth noting that the later we got through the day, the more selling came into the picture. As the US is heading into a recession this year, it is difficult to imagine a scenario where people want to start buying stocks. Yes, there will be the occasional rally, and it could even be a very bullish move. However, those are short-lived, as we have just seen over the last week or so. Speaking of the last week or so, the Wednesday candlestick just wiped out most of the gains from that same timeframe. 3850 is a real potential target at this point, opening up the possibility of even further downward pressure going forward.
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