Technical analysis: 20 May 2021

About the author:

Violeta Todorova
Author name:
By Violeta Todorova
Job title:
Senior Technical Analyst
Date posted:
20 May 2021, 10:00 AM

S&P/ASX 200

The XJO has been trading in a strong up trend since March 2020 which is still technically intact. The latest up swing has rebounded close to its all-time high of 7,197 where selling pressure has emerged last week.

The 7,197 is an important psychological level and this initial reaction of rejection is not a big surprise. What is important from here, is to see if the initial sell off will follow through.

We identify an interesting similarity of the overall chart set up over the past month with the set up back in February 2020, in terms of:

  1. The similar levels of resistance
  2. The overbought weekly momentum conditions
  3. The deterioration in the daily RSI indicator expressed by the bearish divergences
  4. The development of a bearish descending triangle from overbought levels, followed by a subsequent breakdown.

Also, the medium-term up trend lines from the March 2020 low have been broken downwards, showing that the down trend is deteriorating.

Although at this juncture in time there is no reversal signal in place, the current set up shows that investors should be aware that the index is overbought in multiple time frames and that the first signs of deterioration in the momentum conditions have emerged.

A break below short-term support of 6,905 is likely in our view, which could trigger an extension of the current decline to 6,640. However, the key level of support to monitor is 6,517.

As long as this level of support holds, the secondary up trend remains intact and the pull backs are likely to be short-lived.

DAX 30

The DAX 30 index has been trading in a strong up trend since March 2020 which is still technically intact. The up trend has lost momentum over the past month and the index has been trading in a narrow range between 14,826 and 15,538.

A small but quite steep bearish divergence between the price and the RSI indicator has formed on the daily chart showing that momentum is deteriorating.

The weekly RSI and MACD indicators have turned lower from overbought levels suggesting that the index is vulnerable to a deeper pull back.

A break below minor support of 14,816 is likely in our view, which could trigger a decline to its medium-term up trend line crossing at 14,300.

At this point we don’t see a reversal of the secondary up trend and we only favour a short-term pull back.
The DAX 30 index has been trading in a strong up trend since March 2020 which is still technically intact. The up trend has lost momentum over the past month and the index has been trading in a narrow range between 14,826 and 15,538. A small but quite steep bearish divergence between the price and the RSI indicator has formed on the daily chart showing that momentum is deteriorating. The weekly RSI and MACD indicators have turned lower from overbought levels suggesting that the index is vulnerable to a deeper pull back. A break below minor support of 14,816 is likely in our view, which could trigger a decline to its medium-term up trend line crossing at 14,300. At this point we don’t see a reversal of the secondary up trend and we only favor a short-term pull back

S&P 500

The S&P 500 index has been trading in a strong secondary up trend since March 2020 which is still technically intact.

After reaching a fresh all-time high of 4,238 and overbought momentum levels on a weekly and daily basis earlier in the month, the up trend has lost momentum and the price has been trading in a narrow range between 4,056 and 4,238.

While the overbought and diverging momentum conditions are usually the first warning sign that develops on the chart, which shows that the up trend is deteriorating, such elevated momentum readings could persist for a while before a deeper correction or a trend reversal takes place.

Therefore, we will be monitoring static and dynamic support of 4,056, as a break below it is required to confirm that a deeper pull back is unfolding, potentially targeting 3,890.

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