Article by Massimo Melosi.
The two most important international stock exchanges, namely the American and the German ones, show a dangerous graphic situation. In fact, they have drawn laterals at historical highs and the possible breaking of the supports of these laterals could trigger important declines.
Let’s start with the American stock market.
S&P500 – This index has been moving sideways since mid-September between a support at 6,550 points (red line) and the maximum at 6,920 points.
Now, however, this lateral recalls a very famous figure of technical analysis, namely the bearish Head and Shoulders. I would like to point out that this distribution pattern is still in its embryonic stage and the right shoulder is certainly missing.
And yet the suspicion is also there because the technical indicators show clear signs of weakness at historical highs. Indeed:
- The Williams Alligator it crossed its moving averages downwards. Therefore the medium-term trend is no longer bullish but rather lateral.
- Money Flow is going down so the bullish momentum is decreasing.
If this hypothesis of mine were true, the decline would be triggered with the passage of this index below its neck-line, i.e. the support at 6,550 points, and would have a theoretical graphic target equal to 6,200 points.
NASDAQ Composite – Here the bearish Head and Shoulders is even more visible. The left shoulder and head are visible and only the right shoulder is missing.
The neck-line (red line), which was precisely touched, is located at 22,200 points. The theoretical graphic target of this figure is equal to 20,430 points.
For both of the two American indices, the graphical target of these bearish patterns is very close to the old highs of February 2025. In this sense, this possible decline can almost be seen as a pull-back movement on these levels.
Now we come to the German stock exchange.
DAX – This index has been moving sideways between 23,050 and 24,765 points since May. Now, however, it seems ready to break the support at 23,050 points (red line) and thus give an important bearish signal. In theory, the graphic target for the reversal of this lateral is equal to 21,420 points where a gap closes.
CONCLUSIONS – The indices of the two most important stock exchanges in the world are dancing on dangerous supports and, in theory, if they were broken it could trigger drops of several percentage points.
In my humble opinion this will happen and therefore we will have a correction between the end of November and the first half of December. Obviously the possible decline of these two stock exchanges will also drag the markets downwards.
However, this should not be seen in a negative sense because this correction will lead the markets to their supports and even to be oversold and will therefore create fertile ground for the classic Christmas rally to start. In other words, this possible reduction could become a tempting purchasing opportunity.
DISCLAIMER:
It is specified that:
The indications provided are personal simulations and are not a solicitation for their use by others. Everyone must decide on investments on their own. We therefore decline any responsibility for their improper use.
These graphic analyzes are purely theoretical hypotheses which cannot necessarily be verified in reality.
The author of this article is an investor and may hold the securities that are the subject of his analyses.