Major stock markets test key support levels
Significant losses in stock markets recently have set us up for a test of very important support levels in the E-mini S&P 500, Dow Jones, DAX 30 and FTSE 100.
The E-mini S&P is closing in on the lower trendline of the wide sideways channel at 2910/05. We have been trading in this channel all year.
However, more importantly on the weekly chart below, you can see not only that lower trendline but also the 100-week moving average and 38.2% Fibonacci support at 2595.
As long as this holds, the market remains in a sideways consolidation. But a strong rally back up to 2800/2850 could form the right shoulder of a huge 12-to-15-month negative head-and-shoulders pattern. This is certainly one to watch next year.
A break below 2580, therefore, acts as a very important sell signal this week. This would risk a slide of another 300 points or just over 10%.
The E-mini Dow Jones weekly chart below shows a similar trend channel forming this year as we test the lower trendline. This coincides with a confluence of Fibonacci support at 24228/24155. So, as long as the index holds above 24000, bulls are safe and we remain in this consolidation phase.
However, a break below 24000 can easily wipe 700-800 points off the index in December. We would then re-test the 2018 low at 23088.
Focus on DAX
The DAX 30 futures are completing a very negative head-and-shoulders pattern. You can see this in the weekly chart below.
We have been dancing around the important green neckline for five or six weeks now, unable to make a break in either direction. The bears must be frustrated that the pattern has not yet led to a significant collapse to the downside, especially with US stock markets suffering big losses this week.
We have to look much further out to discover why the DAX has held up so well. We are testing very important seven-year trendline support at 11000 (see the long-term chart below). I have seen many head-and-shoulders patterns fail, with bears squeezed out by violent rallies. I wonder if this is about to happen in the DAX, with a Santa rally just around the corner in December?
Focus on FTSE
Lastly, even the FTSE 100 is holding important support, despite all the political and economic worries of the Brexit agreement. The pound sterling has been hit hard again, but the index is oversold on the weekly chart. It is holding important 38.2% Fibonacci, 200-week moving average and two-year trendline support in the 6955/6915 band.
This is make-or-break time for these stock markets. I believe it could be worth betting on a Christmas rally, especially with all the negativity I read from commentators on social media.
After significant losses recently, there is a huge amount of talk of a crash in 2019. In 30 years of trading I have traded all the crashes since 1987. None of them have been expected by so many commentators, traders and investors. I do not believe the next crash will come until the bears have given up and the market can finally be caught by surprise.
However, if we close November below the important support levels listed above, I will be calling for significant declines into January.
Technical Analyst & Trader
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