Key Talking Points:
- Dow Jones struggles to hold above 30,000
- DAX 30 is caught under a key resistance line
- FTSE 100 still shows good bullish potential once key Fibonacci resistance is cleared
With a pretty loaded economic calendar next week, we are likely to continue seeing equity markets focusing on vaccine news and containment measures from around the world. With global cases continuing to rise and Christmas plans in jeopardy, economic figures for the month of October are likely to be ignored as they will be disregarded as outdated, but we could see some impact from PMI figures as they are considered to be one of the most forward-looking.
Overall, positive momentum is still present but overbought conditions are starting to appear, which means we could see corrective moves in the weeks ahead. We mustn’t forget that, despite there being a light at the end of the tunnel and markets being forward-looking, there is still a lot of uncertainty and economic stability is likely to be a long way away. That is why risk-managing should be an important practice when placing trades given that market volatility can be sparked pretty quickly.
Top economic events next week
DOW JONES FORECAST
After roaring higher at the beginning of this month due to positive coronavirus vaccine news, the Dow Jones has reached another milestone last week: breaking above the 30,000 mark and setting a new all-time high. A shorter week due to the Thanksgiving holiday meant less momentum to hang on to, and so the equity index has seen a mild correction back towards 29,800, possibly brought on by profit-taking given the 30,000 mark was a culmination of a long-extended bullish run.
We need to keep in mind that investors might be getting too bullish, and further corrections cannot be rejected in the short-term. Looking back at what happened at the end of the summer, we could see the Dow pull back towards 28,000 before we are able to fully extend gains above 30,000. That said, positive vaccine news is likely to keep bullish momentum high and therefore there will likely need to be a catalyst for bearish pressure to swoop in. Looking at technical levels, 29,565 could be the first area of support if sellers come into control, followed by the low seen on Friday the 20th of November at 29,125.
Dow Jones Daily Chart
Recommended by Daniela Sabin Hathorn
Get Your Free Equities Forecast
DAX 30 FORECAST
The DAX 30 also managed to push higher this past week but an important horizontal resistance at 13,325 showed to be a tough area for buyers to crack. Upside momentum has been halted for several days now at this level, but we can expect the German Index to continue its attempt to push higher this coming week. If so, the next area which may offer resistance is located between 13,530 and 13,600, where bullish momentum was softened in various instances back at the beginning of 2020 and before the coronavirus outbreak.
DAX 30 Daily Chart
But just like the Dow Jones, the DAX 30 is sensitive to short-term corrections as the index is bordering oversold conditions. For now, the 13,000 mark is likely to offer short-term support, but a significant increase of bearish momentum could see a sustained break below this level towards the 76.4% Fibonacci level at 12,447, followed by the horizontal resistance-turned-support at 12,290.
FTSE 100 ANALYSIS
The FTSE 100 still enjoys a greater upside potential when compared to the Dow and the DAX given it is mostly composed of growth stocks that were hard hit by the pandemic. In fact, the British equity index has been stuck below the 61.8% Fibonacci level for some time, with the latest rejection happening this past week. Buyers are still in control at this point, and the stochastic indicator has reset itself back towards the oversold territory, so we could be in for a new attempt to break this key resistance next week.
If so, the next area to focus on is the 76.4% Fibonacci at 6,895, but further bearish pressure between 6,500 and this level cannot be ignored, at which point 6,590 is an important area to monitor as it offered short-term support back in March. If the 6,490 are is unable to be broken, immediate support is likely to be found at last week’s low at 6,255, followed by the 50% Fibonacci at 6,160. It is also important to remember that ongoing Brexit talks can offer heightened volatility to the Pound, which can have an effect on the UK stock market.
FTSE 100 Daily Chart
— Written by Daniela Sabin Hathorn, Market Analyst
Follow Daniela on Twitter @HathornSabin