Investment Idea

DAX is at important support level

27/03/2018 | 2 min read

The German DAX index last week showed continuous weakness and declined to the important support level at 11 830. In the case the index starts to establish under this support level, it could be an indication of further weakness. Additionally, the long-term trend is starting to point down. However, a more positive news feed could possibly spark the technically oversold market and help give strength if it breaks resistance at 12 000, 12 350 and 12 450. Indications of long-term strength could be received if the index starts making ground above resistance at 12 600- 13 000 during an increased volume.

German market had a declining trend last week ending at 11 886,31 after dropping -4,1 percent. The decline so far this year has thus been increased to -8,0 percent.

An international weak stock market climate in the beginning of last week caused the German DAX to likewise weaken. The German sentiment index ZEW, which measures expectations from German investors and analysts, came out worse than expected which added to the declining index. In addition, multiple other macroeconomic statistics have fallen worse than expected in the past week.

The Federal Reserve acted as expected, increasing the key rate by 0,25 percentage points. Another two interest rate hikes were signaled this year. The reaction on these messages added to the weak sentiment on the stock market.

US President Donald Trump’s announcement on his increasingly tougher strategies towards China, in a trade and investment point of view, had a negative effect on the world’s stock markets. Even though the threat of tariffs towards the EU has weakened, a potential trade war between the US and China would be devastating for the world economy. There is never a winner in a trade war, even if the American President seems to have a different view.

For the German DAX index last week showed a decline and a test of important support level at 11 830. The index was temporarily below this area but quickly bounced back up again. In the weekly chart, the DAX could potentially show weakness if this support is broken.

Weekly chart of the DAX                                                                                                                                     

Previously, the DAX received signals of long-term weakness when the positive trend line in the weekly chart was broken and the index parked under its 40-week moving average.

An indication of further strength could be if the index, during a high volume, settles over resistance area at 12 700- 13 000.

In the daily chart DAX has shown continuous weakness since the beginning of the year and is now in a consolidation area within the declining trend. Important support levels sits at 11 830 while resistance levels lies at 12 600.

Daily chart of the DAX

In the hourly chart the DAX last week showed potential weakness. If the index breaks support level at 12 000 it could eventually be an indication of short-term strength to come. If so, resistance at 12 160, 12 350 and 12 450 is of importance.

Hourly chart of the DAX                       

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