Today’s trade is likely to run smoothly. Corporate dates are just as few and far between on this Monday as relevant indicators. And Labor Day is in the US, and the stock exchanges on the other side of the Atlantic are closed on this holiday.
Despite the significant losses on Thursday and Friday, especially in the USA, there is much to suggest a continued positive development on the stock exchanges. So far there have been no signs that the Corona rally will end.
That fears of an end to the great stock boom arise related to the severe setbacks in American technology stocks. The Nasdaq index lost five percent on Thursday.
Last Friday, the technology index was more than five percent in the red when it opened, but was able to limit the losses to 1.3 percent by the end of trading. This development lets the Dax start in positive territory on Monday.
A look at the Nasdaq chart shows: Brief and particularly severe setbacks are not unusual on this stock market. In April, June and July of this year there were also sharp cuts, which were then ironed out again after a few days.
From a technical point of view, such setbacks are considered a healthy development because they prevent the market from overheating. In August alone, the Nasdaq 100 selection index rose by around ten percent.
Yet: The severity of the price declines in the past few days indicate that this correction will not be over within a few days as in the past. Investors should rather be prepared for a longer sideways phase with more turbulent trading days. Even today’s friendly start to the German stock market does not change that.
Seasonal aspects also fit the thesis of a longer correction. Because there is the presidential election on November 3rd in the USA. During the classic election rally that has almost always taken place these years, the US stock markets paused from early September to early October.
It is easy to explain that the losses, especially in the USA, have been so high in the past few days. Across the Atlantic, free online brokers have given private investor gambling a new boom.
There is also this trend in this country. Private investors traded two and a half times as much in the first half of the year as in the previous yearis the conclusion of a study by ING Bank. The volume of purchases was significantly higher than the volume of sales and the volume of trade for men was five times that of women. Also in the private circle, so my personal assessment, rarely has stocks been discussed as much as in the past few weeks and months.
These new private investors are currently experiencing their first fiasco on the stock market. You have seen a long period of price gains. Even if there has been consolidation in the meantime, coveted technology stocks like this have never plunged Apple and Tesla so dramatically.
The paper of the electric car pioneer slipped within a few days at its peak by more than 30 percent, since the beginning of September the Apple share has meanwhile fallen by more than 15 percent.
It should come as no surprise that these “new stockbrokers” switch to sell mode more quickly in such phases.
Incidentally, both papers still have room for improvement: Apple has gained 30 percent since the stock split was announced and lost ten percent last week.
Tesla has gained 70 percent since the stock split was announced and is currently 20 percent lower.
The market logic behind the rise: Investors buy the share because they expect the share to be bought more heavily after the split due to the lower price. In most cases, however, the price then falls back to the level it was before the split.
Today, Monday, there is an important economic numberleading to industrial production. The result is disappointing. The German companies have increased their production for the third month in a row after the corona-related slumps. Industry, construction and energy suppliers together produced 1.2 percent more in July than in the previous month. Economists had, however, expected a significantly stronger plus of 4.7 percent.
What the chart technique says
In the near future there will probably be a promising, classic buy signalif the average line of the past 100 trading days intersects that of the past 200 trading days from bottom to top. The last time there was such a medium-term buy signal was in June 2019 and September 2016 – and then prices rose significantly.
After this technical signal in June 2019, the Dax then rose to its record high of 13,795 points. In August 2016 there was a plus of more than 3000 points.
But first, investors should look to the support brands. The area around 12,800 points was already “processed” on Friday with the daily low of 12,755 points, the next lower level is at 12,600 points. Should the index stop there, it would support the upward trend.
However, if the stock market barometer should fall below the mark of around 12,200 points, the positive trend from a technical chart point of view would be in danger. Among other things, there is exactly the 200-day line that is important for long-term investors.
There are 13,460 points to note on the top. The new Corona high has been there since last Thursday, the highest score since the crash in mid-March of this year.
The value goes too well with another brand. It is the downward price gap from the month of February when the corona crash started.
Such downward price gaps occur when the lowest point on a trading day is above the highest price on the following day. According to chart analysis, this is considered an important resistance. In this specific case, this resistance would be overcome if the Dax climbed above 13,501 points. Should the Dax close this gap, there is much to be said for a new record high, which is currently at 13,795 points.