January ends with declines in virtually all the major indices

February 2, 2021

We have already finished the first month of the year 2021 and begin February with our eyes firmly fixed on the global vaccination progress. These vaccination rollouts are not advancing at the expected pace, which has not only generated tensions in the financial markets, but also provoked confrontation between various institutions and pharmaceutical companies over the distribution of vaccines, most recently between AstraZeneca and the European Union.

Meanwhile, the pandemic continues to spiral out of control, with the third wave hitting citizens and economies hard. Many countries are taking increasingly drastic measures to curb the virus’ impact which has caused increased volatility and uncertainty in the markets.

At the beginning of last month, we published an analysis in which we spoke of the rises in the major world indices during 2020. Although during the first half of January these rises generally continued, we ended the month with falls in the main indices, with declines of 2.04%, 1.11%, 2.08% and 3.92% in the DJI30, SP500, DAX30 and the IBEX35 respectively. The exception is the NASDAQ, which has risen by 1.42%.

SP500 – Technical Analysis

If we look at the daily chart of the SP500, we can see that the uptrend is still in force, although the price is currently undergoing a bearish correction after reaching historical highs in January. This has led it to break downwards through its 18 and 40 session moving averages (black and orange respectively) that have served as its main support during the last months, until reaching the uptrend line that started at the lows of last year.

If volatility continues and the SP500 manages to break below this trend line, the price could continue its pullback to its previous resistance level in the green zone. At the moment, its 200 moving average is far away and this is its most important support level.

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As long as the uptrend remains in force, any pullback can be used by investors to open long positions.

Depicted: Admiral Markets MetaTrader 5 – SP500 Daily Chart. Date Range: 23 October 2019 – 1 February 2021. Date Captured: 1 February 2021. Past performance is not necessarily an indication of future performance.

Price evolution of the past five years:

2020: 15.05%

2019: 29.09%

2018: -5.96%

2017: 19.08%

2016: 8.80%

DAX30 – Technical Analysis

As we mentioned last week, during the last few months the DAX30 has maintained a clear uptrend that increased after the breakout of the upper band of the green side channel that acted as its main resistance in a strong sideways movement between July and mid-December.

This breakout led the price setting historical highs, surpassing the 14,000 point level, supported by its 18-period moving average. However, after setting the highs on 8 January, the DAX made a triangular formation which can be seen in the H4.

Although this type of formation is usually a trend continuation, ultimately, the price broke this triangle downwards due to increased uncertainty, which has led the price to face its previous resistance level in green, which currently acts as its main support.

If the fear of new strains continues to grow and the downward pressure continues, the DAX30 could lose this important support level and continue its declines to the area coinciding with its 200 moving average in red and the uptrend line.

As long as we do not lose this important level, the long term trend remains bullish, so as with the SP500, any pullback can be used by investors to open long positions.

Depicted: Admiral Markets MetaTrader 5 – DAX30 Daily Chart. Date Range: 25 September 2019 – 1 February 2021. Date Captured: 1 February 2021. Past performance is not necessarily an indication of future performance.

Price evolution of the last five years:

2020: 3.6%

2019: 25.48%

2018: -18.26%

2017: 12.51%

2016: 6.87%

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