#INDICES ANALYSIS: #DAX30,#SP500,#DOWJONES (26 MAY 2022)
DAX Forecast: Index Continues to Churn Sideways
Keep in mind that there are a lot of concerns when it comes to the European Union, and we will have a lot of concerns when it comes to Germany.
The German DAX Index fell a bit on Wednesday as we continue to hang about the €14,000 level. The €14,000 level also coincides quite nicely with the downtrend line that I have drawn on the chart, making up the top of the channel. Because of this, it makes a certain amount of sense that we will continue to struggle. Further exacerbating the idea of resistance is going to be that the 50-day EMA sits just above, so I do think that it is going to be somewhat difficult for the DAX to take off to the upside.
If we break down below the bottom of the candlestick for the trading session on Wednesday, it allows the market to go much lower. At that point, the market will more likely than not try to get to the bottom of the overall channel. Ultimately, we are at an inflection point, so it’ll be worth noting where the next impulsive candlestick forms. Keep in mind that there are a lot of concerns when it comes to the European Union, and we will have a lot of concerns when it comes to Germany. The German economy is the bellwether for the content, so you need to pay close attention to what’s going on here.
The ECB recently has suggested a 25 basis point rate hike is in the pipeline. That would in theory be bad for stocks, but at the moment you still have to keep in mind that the central banks probably have very little chance of getting overly tight, and I believe that traders are starting to bank on that. In that scenario, we may see a recovery in some of the stock indices. If we break down below the bottom of the candlestick for the trading session on a significant red candlestick, then I would look at the 13,600 level as a target.
S&P 500 Forecast: Rallies into Close After Fed Minutes
I think at best we are probably looking at a “fade the rallies” situation.
The S&P 500 rallied on Wednesday to reach the 4000 level. However, we pulled back just a bit from this large, round, psychologically significant figure, as we continue to see a lot of volatility. Whether or not we can hang on to the gains is a completely different question, but at this point, I think we have a scenario where the markets will continue to show a lot of volatility. I believe at this point, it’s worth noting that we are trying to bounce from the bottom of the Bollinger Band indicator as well.
I do believe that any rally at this point is probably short-term in nature, so I’m looking for some sign of exhaustion to start selling. The 4100 level would be the next area of resistance, followed by the 4200 level. Underneath, I believe that the 3800 level could offer a bit of support and breaking down through that level will cause the stock market to take an absolute crashing dump.
Interest rates are starting to drop a little bit in the 10-year yields, so that does give bullish traders at least a little bit of hope, but ultimately, I think this is a scenario where you will continue to see plenty of problems plaguing the market, and plenty of fear to say the least. It’s not necessarily a market that I’m willing to get long of yet but breaking above the 4100 level is at least an attempt to change the overall trend, so it’s possible that we have the beginning of something a bit bigger. That being said, there are still a lot of concerns about inflation sticking around, and growth slowing. If that is going to be the case, there’s no real reason to think that stocks will climb over the longer term.
As Wall Street thrives on cheap money, they are essentially going to be waiting for the Federal Reserve to step in and save them. We are bouncing a bit from a 20% drop, which is typical as a lot of traders look at that as a great entry point for investments. That being said, markets can get a lot cheaper given enough time, so you need to be very cautious. I think at best we are probably looking at a “fade the rallies” situation.
Dow Jones Technical Analysis: Rises for Fourth Consecutive Day
We still expect the index's decline to return during its upcoming trading.
The Dow Jones Industrial Average continued to rise during its recent trading at the intraday levels, to achieve gains for the fourth consecutive session, by 0.60%, to add 191.66 points to it. It settled at the end of trading at the level of 32,120.29, after rising in Tuesday's trading by 1.98%.
In other economic news, the highlights of Wednesday's calendar were smaller-than-expected gains in new orders for durable goods and another dip in mortgage applications. New orders for durable goods rose 0.4% in April, while shipments rose 0.1%. Excluding transportation, new orders rose 0.3% and shipments rose 0.2%. Earlier today, the Mortgage Bankers Association reported that mortgage applications fell 1.2% in the week ending May 20 after a 11% drop in the previous week's report.
Technically, the index’s stability above the main resistance level of 32,000 is considered a positive sign for the index, especially amid the continued influx of positive signals in the RSI indicators. Despite this, the corrective bearish trend is still the dominant trend in the short term with the index trading in a price channel range, as shown in the attached chart. For a period of time (daily), while the negative pressure continues for its trading below the simple moving average for the previous 50 days.
Therefore, we still expect the index's decline to return during its upcoming trading, especially if its stability returns below the 32,000 level, after which it will target the main support level 31,000.
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