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The calm before the storm in equities?

Dow Jones index

Last week, the two-month long uptrend broke down and entered a downtrend, falling below its 10-day moving average. The United States 10-year interest rates began to rise again due to better-than-expected economic indicator releases, and the Dow Jones Industrial Average has sold off again.

This week, the United States November Consumer Price Index will be released and could move the market significantly. Given the sharp rally since October, there is a risk of a significant decline if inflation rises more than expected. 38% of the Fibonacci retracement of the rise from the October low is 32,325, and the 50% retracement is 31,600.

On Wednesday and Thursday, central banks from the United States, England, and European Union should raise interest rates by 0.50%, which could dampen sentiment and put downward pressure on the stock market. While the Dow Jones Industrial Average is currently bearish, many bullish traders are looking for a positive end to 2022. If the economic indicator releases this week come in below expectations, a move above $34,000 could resume the uptrend.

Dow chart Dec 12

Resistance:34000, 35000, 35500, 36000, 36500, 37000

Support:33000, 32000, 31725, 31000

Nikkei 225 index

Gains by the USDJPY in the past week helped the Nikkei support at the end of the past week, breaking the short-term downward trend. The Dow Jones index is looking bearish, so despite the USDJPY looking likely to rise in the short term, gains in the Nikkei could be limited. 

Daily volatility continues to fall in the Nikkei, so day traders need to be more patient for opportunities and hold positions longer. Swing traders should watch the Dow for direction regarding the next move. This week’s economic releases and central bank meetings will increase volatility and trading opportunities.

Nikkei chart Dec 12

Resistance:28000, 28500, 28750, 29000, 29250

Support:27500, 27000, 26500, 26000