DAX and SPX Weekly Analyses, Feb 16, 2020

Another up week on German DAX and US indices is behind us.


Data releases and earnings reports for next week are in the table below.

Lower liquidity on Monday, due to US holiday, and later we will have some important data releases. FOMC and ECB events are without Press Conferences, so Flash Manufacturing PMIs on Friday could be more important. Seven DAX 30 components with Earnings reports, Allianz is the biggest one.


No real change on the markets - like written in the previous Weekly Analyses: Downside needs support breakdowns, while upside needs just a lack of weakness.


So, in this blog, there will be some educational charts, highlighting importance (or lack of it) of a single candle look, and divergences in a strong trend. Lets see some charts.


Chart #1 - SPX Daily

No change there, and one important Support (3338) added to the chart.


Chart #2 - SPY Monthly

#1 Single candle usually doesn't mean much by itself - just one piece of information, as we can observe on the above chart. Monthly candle of December 2018 was the biggest red candle since the rally started, back in ancient times of 2009. Negated two months later.

#2 Then the May 2019 came, a bearish engulfing candle, personally a fantastic month for me, that made me hope that more volatility can come, and a reminder later that hope is not a strategy.

#3 Negated in a single month. Another big leg to the upside and a doji candle on January 2020. A rare sight indeed, on a monthly chart.

#4 Month is not over yet, only half of the February is gone, and price already above the January wick. Where the February CLOSE is going to be? A million dollar question.


Price is an advertising mechanism - famous sentence by Jim Dalton. Much more important is: price HOLDING above or below S/R level / zone / area...


Chart #3 - VIX Daily

VIX doing nothing as usual. Trendline break was just a fart in the bathtub - so nothing to see there. Low volatility supportive for further grinding higher.


Chart #4 - FDAX Daily with bullish and bearish divergences


There were many Regular divergences and Hidden divergences on this chart. If you are not familiar with this, click on the links, articles are very short.


IMO - this is the way of using oscillators like MACD and RSI, since overbought or oversold condition by itself is not a usable information. Trending markets can be oversold or overbought for extended period of time, and divergences can stack, until price hit some really good large time frame area of support or resistance OR move is extremely extended.


Observe the last case of bearish divergence - good for a pullback, after which price made a higher high. As written about single candle look, no matter if it is a daily, weekly or even a monthly one - just another piece of information.


Support and resistance, and does market holds above or below them - trumps single candles and divergences.


Chart #5 - DAX Cash Index


Interesting daily closes of February 12th, 13th and 14th - all inside 5 points.


From last Weekly Analyses: We got a false break above the previous ATH, and move down at first was logical. But now, price is again there. Making higher lows. Homework - check the OXJ (ASX 200 - Australian index) chart for false break above prev. ATH, break later, and test of the break.


Breakout area tested on Thursday, with "V" reversal type of bounce. That remains the most important support, area around 13,600. Next are ~13,450 and 13,380. Strong market would hold above 13,600 - so next week we shall see how strong this market really is. One of the possibilities is forming a new range 13,600-800, and just consolidate there.


At these prices, swing trades are more a thing of directional conviction - like that breakout test from Thursday. From Morning notes of Feb 13th: "... bigger trades (with bigger stops) we could get as longs from ~13,600 area in case of zone holding .." What will you do as a trader there - take a high odd day trade long, or hold for longer and possible bigger gains, that is up to you. Some of the traders with strong directional conviction are still holding. Majority of day traders are flat.


Day by day approach, since there are no horizontal resistances on DAX above 13,790 and the same like on US markets: Downside needs support breakdowns, while upside needs just a lack of weakness (meaning HOLDING above support). As always, paying attention to tempo and momentum of the markets, since during the week, daily opportunity potential can be very different.

 

In short term trading it is very important to properly understand context heading into every day, to know from which side wind is blowing - who has the short term control, and which side will be forced to liquidate IF and WHEN market hold above or below a certain level. What is the level of volatility, what can we expect from any particular day, what market already done in premarket session, what possible setups can be available, and so on... the things that we constantly learn in the DAILY DOSE OF DAX.


Cheers, StrayDog