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Dow Jones Rebounds, DAX Consolidates, Hang Seng May Form "AB=CD"

Dow Jones Rebounds, DAX Consolidates, Hang Seng May Form "AB=CD"

Margaret Yang, CFA, Strategist

DOW JONES, DAX 30, HANG SENG INDEX OUTLOOK:

  • Dow Jones Industrial Average rebounded mildly from its 100-Day SMA at 26,900
  • DAX 30 index may consolidate after forming a large bearish candlestick. Bollinger Band widened
  • Hang Seng Index (HSI) may form a bullish “AB=CD” pattern

Dow Jones Index Outlook:

Dow Jones Industrial Average index (DJIA) futures are oscillating at Asia open after registering a small gain overnight. Concerns remain, however, over the coronavirus resurgence in part of the EU, and dwindling hopes for the US fiscal stimulus plan. The US Dollar climbed for a second day to 94.00 – the highest level seen in over 7 weeks. A stronger US Dollar looks set to cool precious metal and crude oil prices.

On the calendar, the RBNZ interest rate decision at 10:00 SGT and US Markit Manufacturing PMI readings to be released at 21:45 SGT are among the key events today. Read more on our economic calendar.

The VIX future term structure (chart below) suggests that the market is pricing in higher levels of volatility leading up to the US Presidential Election, with VIX futures peaking in early November and reverting back thereafter.

Source: vixcentral.com

Overnight trading displayed a fairly balanced sectoral pattern, with information technology (+1.37%), communication services (+1.09%) and consumer staples (+0.83%) leading, while energy (-1.01%), financials (-0.67%) and materials (-0.23%) lagged.

Dow Jones Index Sector performance 22-9-2020

Source: Bloomberg, DailyFX

Technically,the Dow Jones found some support at its 100-Day Simple Moving Average (SMA) line, which is hovering around the 26,900 level. Despite a mild gain last night, its overall momentum appears biased towards the downside, as price plunged below the lower Bollinger Band two days ago and formed a large bearish candlestick. A break below then100-Day SMA is likely to open the room for further losses with an eye on 26,650 – the 23.6% Fibonacci retracement.

Dow Jones IndexDaily Chart

DAX 30 Index Outlook:

Germany’s DAX 30 also registered a large bearish candlestick on Monday, which flags more turbulence ahead. A significant widening of its Bollinger Band suggests there may be more selling pressure in the days to come while the MACD indicator has also flipped decisively into the negative territory. The technical observations are in line with the fundamental picture, with a virus resurgence potentially halting Europe’s fragile economic recovery.

DAX 30 Index – Daily Chart

Hang Seng Index Outlook:

In the past four weeks, the HSI has trailed its major peers - such as the Dow Jones, Nikkei 225 and DAX 30 – due to multiple headwinds. Financial names were among the worst performers yesterday, with HSBC (-2.05%), Hang Seng Bank (-1.28%) and AIA (-1.09%) leading the decline.

Technically, HSI is likely forming a bullish “AB=CD” pattern (chart below), with a potential support level found at 23,300. A firm rebound from the “D” point may signal a potential trend reversal. However, further decline below the “D” point could potentially lead to a test of the 23.6% Fibonacci retracement level at 22,900.

Hang Seng Index Daily Chart

--- Written by Margaret Yang, Strategist for DailyFX.com

To contact Margaret, use the Comments section below or @margaretyjy on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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