Global stocks have started Monday with a bang ahead of the Jackson Hole symposium later in the week. The major EU indices were up between 1.2 to 1.9 percent, with shares in BT up 5% at the top of the FTSE amid takeover chatter after the suspension of its dividend saw shares slumped to their lowest level in more than a decade. US index futures also extended their gains, suggesting the S&P and Nasdaq will add on to a record-setting week when Wall Street opens for trading later. Last week, the S&P 500 hit levels not seen before the pandemic, before closing at a record high. It was the index’s fourth consecutive positive weekly close, and the 7th out of the past 8 weeks.
European investors are ignoring the sharp increases in coronavirus infections after France reported 4,897 new Covid-19 cases on Sunday, which was the largest one-day jump since the previous peak in April. Summer holidays and the relaxation of lockdown measures have seen virus infections rise in a number of European countries, causing officials to tighten measures to slow the spread of the disease. However, as the PMI data revealed on Friday, the economic recovery post lockdown is already stalling and governments will be very reluctant to resort to widespread closures like we saw during the initial peak of the pandemic in March and April. Instead, they will be keen to provide more monetary and fiscal stimulus to support the recovery. What’s more, investors are hopeful that an effective vaccine will soon become available, while news that Donald Trump has decided to expand access to a virus treatment involving blood plasma from recovered patients, has also boosted sentiment.
DAX breaking out
Following my last update on the DAX on Wednesday of last week, the German index was unable to break the key 12945/50 resistance and spent the next two days below it, as soft data and rising Covid-19 infections in Europe curbed appetite for risk. However, the support trend of the pennant consolidation pattern was never tested, let alone broken. And following this morning’s sharp rally, the DAX has now cleanly broken that 12945/50 resistance area:
A daily close above this level is now what bullish speculators will be looking for. If achieved, the next objective would be the liquidity resting above old highs around 13100/5 and then 13315/20. Thereafter, the next bullish objective would be the all-time high at just below 13830.
In terms of support, the first and key line of defence for the bulls to watch now is that old resistance around 12945/50. For as long as the index holds its own above this level, the path of least resistance would remain to the upside. However, if this level gives way then the bulls will be in a spot of bother. They will be in real trouble if the index then goes on to take out the most recent low and the support trend of the pennant formation around 12515. Such a scenario would bring into focus the 200-day moving average, which is currently residing beneath an old low around 12210.
So, the bullish trend remains intact for the DAX and global stocks in general. Traders may therefore wish to continue playing on the long side until a confirmed reversal pattern unfolds to suggest the bullish trend has ended.
