Key Talking Points:
Global equities are heading for new highs as they carry momentum over from October after strong earnings and hawkish expectations about interest rate rises keeping bank stocks supported. As we head into the second month of the final quarter of 2021, let’s check back with my Q4 technical guide to see how equities are performing versus the forecast.
DAX 40 | BULLISH MOMENTUM SETTING IN
The DAX 40 continues to run away from its descending trendline resistance and so bullish momentum is setting in nicely. The rise hasn’t been unscathed, with Friday’s pullback being a clear example of resistance along the way, but this has made the short-term outlook strongly bullish as people continue to take advantage of getting in at more favorable levels. The RSI is keeping an upward trajectory nearing the 70 mark, whilst the short-dated SMAs are crossing above the longer-dated ones, both offering support for bulls in the short term.
From here, the bearish scenario would be if the DAX starts to see lower highs and lows, reverting momentum towards 15,600. As long as the index is able to hold above 15,612/27 then the bullish trend shouldn’t be at great risk, but the 200-day SAM would offer further support at 15,189 if so. In the bullish scenario, the DAX continues to build steady gains towards the 16,000 mark, with eyes set on the all-time highs seen in August (16,032).
DAX 40 Daily Chart
Looking at the weekly chart, which is the one I used in my Q4 forecast, the DAX has played into its support nicely, bouncing off the 14,815 mark at the start of the quarter, with the monthly performance in October at around +6.5%. The rise hasn’t been very uniform, given two of the weeks in October ended in the red, but the overall trend has performed in line with the forecast, building stable gains along the way.
DAX 40 Weekly Chart
S&P 500 | NEW ALL-TIME HIGHS
The rebound in the S&P 500 since the lows seen on October 1st continues, having risen over 8.3% in the first month of the quarter, to a new all-time high of 4,626. When I was writing the Q4 guide on the S&P I was focusing on the ascending trendline support which has been breached at the end of September, going that the first pullback to 4,300 would see a quick rebound, but the correction went a little further, distancing itself from the trendline. But the trend has recovered nicely and the S&P is now within a tight distance from the trendline, which falls in nicely with the forecast. The RSI is showing overbought conditions after the recent rally so a corrective pullback is likely in order, but I would be surprised if the index gets anywhere close to 4,500 in the short term, which would be a concern for the bullish outlook.
S&P 500 Daily Chart
— Written by Daniela Sabin Hathorn, Market Analyst
Follow Daniela on Twitter @HathornSabin