#202416 - a weekly price action market recap and outlook - dax
Good Evening and I hope you are well.
overall market comment
Last week was expected until Wednesday, as markets mostly moved sideways. Two weeks ago I concluded the most recent bull trends had their trend lines broken and the daily 20emas also. Wednesday’s CPI print was a bit above forecast but reminded markets that maybe not all is well buying into the highs around the all time highs, while corporate profits stagnate or decline. Even Friday’s amazing bank earnings could not save the market from another bad Event sell off. Situation in the middle east seems to be escalating and which Fund wants to be max bullish when this happens? From a price action perspective, this is still just a pull back in bullish markets but since the bull trend was so overdone, climactic and way beyond historical averages, the pull back could be much more deeper than most bulls are comfortable with and that might be one of the reasons we are seeing more sell the rip (str) price action, than buy the dip (btd or BTFD). The volume on red days is also much higher than on advancing ones and the last time we reached those vol levels were during the deep pull back 2023-07 to 2023-10.
current market drivers
middle east: Big event which could lead to significant downside in the short term. If it isn’t as bad as estimated, could lead to big rebound. One of those things you can’t predict and can only play if your time frames are short and you are quick to exit positions.
earnings: Bank earnings were nothing short of amazing. Market rallied the last months like we are economically expanding and profits are rising like never before in history. Big big tail risk but as long as earnings don’t turn bad, markets will probably not care too much about them. Remember, your job as a trader is not to predict but to follow the market reaction. I thought earnings would come in softer and market would therefore sell off but they came in strong and market sold off nonetheless so I don’t care why my market thesis is right, I just put myself in a place to anticipate market movements and when they happen, I ride the wave in either direction.
second wave of inflation: Commodities are on a big rip and if Oil continues, after 90$, 100$ is next logical target. Hard to imagine prices not rising again on those levels.
dax cfd
Quote from last week:
bear case: My quote from last week tried to encourage you to wait for selling pressure before considering closing longer term longs or enganging in shorts. Market did just that with the beginning of April and we saw a 500 point drop in a two legged correction. Bears need to keep the selling pressure high and if they are strong, keep the bear small bear gaps on the 1h tf open. We are right above the daily 20ema and the lower bull channel line. If bears can get a close below 18250, that could trigger many long stops and the odds of more sideways to down rise significantly. Their next targets are 18250 and 18000 afterwards.
current market cycle: Bull trend - Market is still inside the bull channel and until clearly broken and a lower high below, it stays that way. Yet I do think there is a decent chance the high is in and the retest will be a lower high and the market is currently evolving into trading range before the bigger bear trend begins.
key levels: Strong support 18000 (expected) - 18810 (I can’t see market making another ath, if I had to guess, 18600 will be max if bulls manage to bounce)
bull case: 4 Pushes down on now and only 2 green bars on the daily chart. It’s a very tight bear channel down to 18000 on the daily chart and tight channels are never sustainable. Market is at the bull trend line from 2023-10 and unless the tail risks, especially the middle east situation, is bigger than expected, market will probably bounce. Bulls just have to buy strongly at they big round number here to prevent a flush down to 17600 or even 17000.
bear case: Bears showed strength this week and bulls continued to take profits. Every bounce was sold and this pull back is now as deep as the one we got from mid 2023-12 to early 2024-01, which is around -4%, which is, given the +28% rise, almost nothing. Now we are at the first very important level to determine the strength and speed of this market cycle. If we bounce here and markets shakes off all risks again, we could stay inside a trading range at the highs, or we fall through 18000 and get the first leg of a new bear trend. It is very unusual for markets to go from one trend to another but it can happen. But betting on it, is usually a losing strategy. Bears did an amazing job and closing 2 bull gaps in 2 weeks and their next target is to keep a pull back very shallow to trap many late bulls. The perfect scenario for bears could be as drawn but I do think this is low probability. It’s more likely that we will see a bounce here. A retest of the extreme is almost always expected.
outlook last week: “Sideways to up - Since markets mostly expect a retest of the extremes, the odds favor sideways and a retest. Range is probably 18250 - 18800 for now. If earnings on Tuesday are bad, this could go much lower much faster.”
→ Last Sunday we traded 18433 and now we are at 18082. Again, not the worst outlook because I clearly gave the lower levels if bears could continue to sell off. I’m a little surprised of how fast we got here now, given that 2023-12 to 2023-01 took 21 (TWENTY ONE) trading days to do the same we did in 8.
short term: Tricky one this week but bear with me. It’s an easy if statement. IF tail risks (mainly middle east) continues to get worse, we could see a very deep sell off. Like -4 to -5% deep to 17000. IF market shakes it off and we see strong buying pressure at this key level, we can see a big bounce, targets are 18400, 18600 and retest of ath 18800.
medium-long term: Second bearish week in a row, which has not happened since 2023-10.
I expect at least a -20% correction in 2024. —changed -30 to -20% because price is moving higher while time is getting shorter for the target. Medium term is 17100 while I think we can touch the big bull trend line starting 2022-10 around 16700 in 2024. —unchanged part
Chart update: My preferred path is the green one (higher probability), despite my bearish outlook. If we continue to drop below 18000, this was most likely a W1 of a new bear trend.
overall market comment
Last week was expected until Wednesday, as markets mostly moved sideways. Two weeks ago I concluded the most recent bull trends had their trend lines broken and the daily 20emas also. Wednesday’s CPI print was a bit above forecast but reminded markets that maybe not all is well buying into the highs around the all time highs, while corporate profits stagnate or decline. Even Friday’s amazing bank earnings could not save the market from another bad Event sell off. Situation in the middle east seems to be escalating and which Fund wants to be max bullish when this happens? From a price action perspective, this is still just a pull back in bullish markets but since the bull trend was so overdone, climactic and way beyond historical averages, the pull back could be much more deeper than most bulls are comfortable with and that might be one of the reasons we are seeing more sell the rip (str) price action, than buy the dip (btd or BTFD). The volume on red days is also much higher than on advancing ones and the last time we reached those vol levels were during the deep pull back 2023-07 to 2023-10.
current market drivers
middle east: Big event which could lead to significant downside in the short term. If it isn’t as bad as estimated, could lead to big rebound. One of those things you can’t predict and can only play if your time frames are short and you are quick to exit positions.
earnings: Bank earnings were nothing short of amazing. Market rallied the last months like we are economically expanding and profits are rising like never before in history. Big big tail risk but as long as earnings don’t turn bad, markets will probably not care too much about them. Remember, your job as a trader is not to predict but to follow the market reaction. I thought earnings would come in softer and market would therefore sell off but they came in strong and market sold off nonetheless so I don’t care why my market thesis is right, I just put myself in a place to anticipate market movements and when they happen, I ride the wave in either direction.
second wave of inflation: Commodities are on a big rip and if Oil continues, after 90$, 100$ is next logical target. Hard to imagine prices not rising again on those levels.
dax cfd
Quote from last week:
bear case: My quote from last week tried to encourage you to wait for selling pressure before considering closing longer term longs or enganging in shorts. Market did just that with the beginning of April and we saw a 500 point drop in a two legged correction. Bears need to keep the selling pressure high and if they are strong, keep the bear small bear gaps on the 1h tf open. We are right above the daily 20ema and the lower bull channel line. If bears can get a close below 18250, that could trigger many long stops and the odds of more sideways to down rise significantly. Their next targets are 18250 and 18000 afterwards.
current market cycle: Bull trend - Market is still inside the bull channel and until clearly broken and a lower high below, it stays that way. Yet I do think there is a decent chance the high is in and the retest will be a lower high and the market is currently evolving into trading range before the bigger bear trend begins.
key levels: Strong support 18000 (expected) - 18810 (I can’t see market making another ath, if I had to guess, 18600 will be max if bulls manage to bounce)
bull case: 4 Pushes down on now and only 2 green bars on the daily chart. It’s a very tight bear channel down to 18000 on the daily chart and tight channels are never sustainable. Market is at the bull trend line from 2023-10 and unless the tail risks, especially the middle east situation, is bigger than expected, market will probably bounce. Bulls just have to buy strongly at they big round number here to prevent a flush down to 17600 or even 17000.
bear case: Bears showed strength this week and bulls continued to take profits. Every bounce was sold and this pull back is now as deep as the one we got from mid 2023-12 to early 2024-01, which is around -4%, which is, given the +28% rise, almost nothing. Now we are at the first very important level to determine the strength and speed of this market cycle. If we bounce here and markets shakes off all risks again, we could stay inside a trading range at the highs, or we fall through 18000 and get the first leg of a new bear trend. It is very unusual for markets to go from one trend to another but it can happen. But betting on it, is usually a losing strategy. Bears did an amazing job and closing 2 bull gaps in 2 weeks and their next target is to keep a pull back very shallow to trap many late bulls. The perfect scenario for bears could be as drawn but I do think this is low probability. It’s more likely that we will see a bounce here. A retest of the extreme is almost always expected.
outlook last week: “Sideways to up - Since markets mostly expect a retest of the extremes, the odds favor sideways and a retest. Range is probably 18250 - 18800 for now. If earnings on Tuesday are bad, this could go much lower much faster.”
→ Last Sunday we traded 18433 and now we are at 18082. Again, not the worst outlook because I clearly gave the lower levels if bears could continue to sell off. I’m a little surprised of how fast we got here now, given that 2023-12 to 2023-01 took 21 (TWENTY ONE) trading days to do the same we did in 8.
short term: Tricky one this week but bear with me. It’s an easy if statement. IF tail risks (mainly middle east) continues to get worse, we could see a very deep sell off. Like -4 to -5% deep to 17000. IF market shakes it off and we see strong buying pressure at this key level, we can see a big bounce, targets are 18400, 18600 and retest of ath 18800.
medium-long term: Second bearish week in a row, which has not happened since 2023-10.
I expect at least a -20% correction in 2024. —changed -30 to -20% because price is moving higher while time is getting shorter for the target. Medium term is 17100 while I think we can touch the big bull trend line starting 2022-10 around 16700 in 2024. —unchanged part
Chart update: My preferred path is the green one (higher probability), despite my bearish outlook. If we continue to drop below 18000, this was most likely a W1 of a new bear trend.
