#INDICES ANALYSIS: #DAX30,#SP500,#FTSE100 (18 MAY 2022)
DAX Forecast: Threatening 50-Day EMA
Markets tend to take a long time to turn around after move like this, so I assume we will continue to find plenty of pressure.
The German DAX Index rallied on Tuesday as we continue to see money flow back into equities in general. That being said, there is a lot of risk out there, and it would not take much to spook the markets. Ultimately, the €14,250 level looks to be difficult to get beyond, and I think we have a scenario where you will eventually find sellers as the market is skating on thin ice and is at the top of the overall channel. The 50-day EMA would offer a little bit of technical resistance as well, so it would remain to be seen whether or not it holds.
If we do fall from here, a break below the €14,000 level could bring fresh selling in, sending the market down to the €13,500 level. Any test of that area that breaks down could send this market much lower, as it would be a bit of capitulation by the markets again. On the other hand, if we were to turn around and break above the €14,250 level, then we have a shot at eating the €14,500 level. After that, then we have the 200-day EMA which is just above the €14,750 level. In other words, every €250 or so, we are going to have a little bit of a fight on our hands.
Keep in mind that the DAX is highly sensitive to global markets and of course global economies as it is such a major exporter. Because of this, you need also to pay attention to what is going on in places like China and the United States. With the massive amounts of inflation that we are seeing, I do think that it is probably only a matter of time before all stock indices get hit again, but bear markets do tend to have massive rallies occasionally, only to sell off quite drastically again. Because of this, I would be wary of any type of rally until we get confirmation, perhaps globally. In the short term, I think that the first signs of exhaustion will be jumped upon rather aggressively, as we had been in such a strong downtrend for quite some time. Markets tend to take a long time to turn around after move like this, so I assume we will continue to find plenty of pressure.
S&P 500 Forecast: Reaching Resistance
Remember, bear market rallies tend to be violent.
The S&P 500 rallied a bit on Tuesday but still sits below a major resistance barrier. Furthermore, the Chairman of the Federal Reserve has already stated a very hawkish stance, so initially, we had a selloff as a reaction. However, Wall Street has found some type of narrative to hang onto, but at this point in time, it will only be a matter of time before the overall trend gets held onto.
The 4100 level is resistance that extends to the 4150 level, as it is a “zone of resistance” based upon the market memory from its previous support. Signs of exhaustion in that area could be sold into, as this bounce has been rather strong, but it is also worth noting that we are in a strong downtrend, especially with the 50-day EMA breaking below the 4300 level. The 4300 level is an area where we have seen a lot of resistance as well, so I think we need to break through all of this to consider even remotely going long for a bigger move.
Keep in mind that interest rates in the United States continue to be very strong and it is likely that we will continue to see money run away from risk assets such as the S&P 500. The futures market of course does tend to be a little bit noisier than the underlying index, but either way, it is likely that we will continue to see a lot of volatility. At the first signs of exhaustion, I am more than willing to step in and start shorting this market. I have no interest in buying this market anytime soon, as I think there are far too many issues out there that will continue to cause major problems. Remember, bear market rallies tend to be violent.
FTSE 100 Forecast: Approaching Familiar Resistance Barrier
Expect a lot of chop and keep your position size small, as it is paramount in these times.
The FTSE 100 rallied again on Tuesday but looks as if it is going to have quite a challenge ahead of it. The 7500 level begins a significant resistance barrier that extends past the 7600 level, so it is likely that we will see sellers come into this market given enough time. After all, the market has bounced rather drastically from the 7200 level, but it is also worth noting that equities across the planet are all over the place. With volatility levels as high as they are, it is difficult to imagine a scenario where owning stocks will be the easy way going forward. I do believe that it is more likely than not going to be a situation where we will have a washout coming.
With that being said, the 7600 level is an area that you need to pay close attention to because it is so heavily defended. If we were to break through to a fresh, new high, then it is possible that the FTSE 100 really starts to take off. There are a lot of traders out there willing to bet that the central banks will be much looser with their monetary policy than they have been suggesting, but that is a pipe dream as inflation has gotten so out of control that it is difficult to imagine a scenario where central banks can do anything but fight it.
The lack of global growth will weigh upon the markets as well, so that is most certainly something that you need to pay close attention to, as there are major headwinds facing most developed economies around the world. The market will be noisy, to say the least, and I do think that there is still going to be a significant amount of support near the 7200 level underneath. Because of this, it is more likely than not that we will see a selloff. At the first signs of exhaustion, I am perfectly comfortable shorting this market because we have such an obvious barrier above that if we were to break it, it would more likely than not have a lot of money flowing into the market and you could probably make your losses back. Regardless, expect a lot of chop and keep your position size small, as it is paramount in these times.
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