Another up week for indices, in a month in which DAX so far outperformed SPX. And while SPX and NDX on Friday were testing ATHs, and made marginal higher highs as well, RUT is 10% below its own ATH. Small cap index that is perceived as a risk proxy, and "bigger bang for a buck", which is lagging behind for a full year now. Buyers in control, bullish looking charts... but pretty much the same look was on SPX in September, prior to last FOMC Statement.
Chart #1 - SPX, NDX, RUT Weekly
In the next week: No doubt that event of the week is going to be FOMC Statement, and expectations of a Rate cut, on Wednesday. Current expectations on CME FedWatch Tool are 93.5% chance of a rate cut.
Chart #2 - SPX Daily with prior FOMC Statements dates
Important China Manufacturing PMI and Non-Manufacturing PMI will be released on Thursday. Caixin Manufacturing PMI is scheduled for Friday, and on the same day, as every first Friday in a month - US NFP Report with Unemployment Rate will be released. First two days in the week are with low impact news only, so market could be calm, going into FOMC Statement. SPX and NDX could wait for FOMC near new ATHs.
Earnings could influence markets also, especially since some major companies will be reporting, like Google on Monday, Apple and Facebook on Wednesday - after FOMC Statement. In Germany, we will have following DAX components reporting: Covestro AG and
Deutsche Boerse AG on Monday, Beiersdorf AG, Fresenius Medical Care and Fresenius SE on Tuesday, Bayer AG, Deutsche Bank AG and Volkswagen AG on Wednesday. Out of this eight companies, Bayer can make the most impact on DAX.
Due to Daylight Saving Time Shift, that start tomorrow, for European traders NYSE open will start at 14:30 CET, instead on 15:30 like usual. Back to usual will be a week later, since Daylight Saving Time Shift start in US on Nov 3rd.
MACD / RSI Bearish divergence on DAX, SPX and NDX since mid October, but markets grinded higher anyways. Lower volume, and not so great market internals for US markets this past week, and Friday looking like a "p" on market profile for SPX, indicating short covering, together with stacking unfilled gaps can be something to carry forward. Market can go higher with or without this warning signs, but usually all of this is indication of at least liquidation break coming.
Chart #3 - DAX and SPX Cash Index Daily
Last three ATHs on SPX came with a false breakouts, which can be the case again. Market could just go to the last resistance that we have on chart - that rising trendline around 3050, or slightly above - and then below former ATH, thus making false break above ATH. Markets are aware of a great chance of rate cut for a long time, so that is also priced in. Question about the FOMC Statement is similar like last time - can it be "sell the news" event again?
Chart #4 - SPX Daily with prior highs and higher lows
In the same time, we have higher lows. So, even if we get another false break, confirmation of possible bigger downside would be only IF price starting to make LOWER lows on LTF charts.
Real breakout would be confirmed above ~3050, so above trendline, and break above ~3025 could be tested later. SPX is in the multi month range of around 200 points, so we could use 100% expansion of the range as possible bullish target, since we don't have any resistance left on the charts. As always when price is testing prior ATH - there will be bullish and bearish arguments, and last three times, Johnny-come-late buyers got hurt.
Chart #5 - DAX Cash Index Daily
IF DAX can go above 12,890 level, and hold above prior week high, which is also this year high, first resistance is around 13,000 which is not only a round number, but we also have a unfilled gap there, at 13,010 (Chart #3). Next resistance is around 13,200. Both of those resistances can be good hurdles on the road to test prior ATH. We could get a bigger pullback, to the 12,500 area. Similar like prior break of the range - represented by blue boxes on the chart - market tested the top edge of the lower range later. After a break above 12,500 - we didn't get that test. So test of the 12,500 area where we also have another unfilled gap - at 12,487 and those trendlines is a possibility.
DAX is a SPX follower, and also lagging behind for a long period. IF SPX makes a run higher, DAX is likely going to follow. The same goes for downturn on SPX, so failure from this current levels in case DAX don't have strength to test 13k is also a option. IF we get a test of 12,500 area, likely that will be a good place for a long attempt, that can be a swing trade also.
Keep an open mind, and if you are a day-trader like me - go day by day using the market generated information to be prepared and to execute according to your plan. Keep in mind which side is dominant that particular day. Zone-2-zone trading has been proven successful in all conditions, and that is not something that I have invented just now, but also what others are saying about it. Here is what active UK trader and a Subscriber of DAILY DOSE OF DAX Service, wrote to me in his email (August 9th) : "Since your services inception late last year, the market has shown us a bit of everything and zone to zone trading has shown itself as remarkably resilient method for daytrading."
Know the context, know your support and resistance zones, execute.
Have a good weekend, StrayDog