Investment Idea

DAX consolidate in a technically pressed situation

20/02/2018 | 1 min read

German DAX bounced back last week, from a technically pressed situation. DAX has previously triggered weakness, and long-term technical view looks to be about to change. Therefore DAX is considered to be technically pressed, and renewed strength might have a hard time to come to light, where a situation with increasing trading activity would find ground above resistance levels around 12 700 – 13 000.

Last week German market recovered from its previous weakness. DAX gained +2.8 percent, closing the week at 12 451.96. So far this year, the index loss has been reduced to -3.6 percent.

So far the current strength continues to hold, moving away from a previously significant technically pressed situation. The DAX has moved from its highs at 13 597 on 23rd of January to a lowest value of 12 009 from February 9th. This is a total loss of -11.5 percent, during 2.5 weeks.

This means that a recovered move of about 3.7 percent is no that significant. On the other hand it is a clear sign the market has picked up volatility.

The lower move and increased volatility came to light after U.S interest rates on bonds started rising to highest levels since 4 years back. This move came after statistics showed that a higher than expected rate increase on the U.S job markets. This resulted in a gain in the interest rates, and market turbulence globally.

An interesting question would be how to interpret the current lower market move in the bigger picture. Is this a healthy ventilation in a long-term gain on a global perspective? Or is this the first clear sign that the international market trend from its several years highs, and global market sentiment is about to turn less attractive on a long-term perspective?

It might be a bit to soon to tell the tale. One important factor could potentially be if the long-term technical view on the U.S market has turned or not. So far the U.S market index S&P 500 continues to stand firm above its 200-day moving average, and over its lowest level on February 9th at 2532.69, potentially showcasing further strength up ahead.

On the other hand if S&P 500 starts showing real weakness, this might trigger bigger question, if this might be a sign of a wider weakness ahead.

Technically the long-term view looks to be slowing down for the DAX. From previous triggered weakness, the index broke both support levels at 12 750 – 12 800, and positive trendline in the weekly chart below.

Weekly chart of the DAX                                                                                                                                     

DAX is trading well below its 40-week moving average, which significance is equaling to its 200-day moving average in the daily chart, which has also showed weakness.

In a scenario where DAX starts establishing ground below its significant support area below 12 00, the index might be looking at continued weakness up ahead. In such a case, the index would break its pattern of higher highs and lows, potentially confirming technical trend has changed.

Looking at the Stochastics-indicator in the weekly chart above, DAX continues to be trading at low and technically oversold levels. Therefor it would not be surprising if a recoil comes to light, though continuing to be located within support area at 11 850 – 12 000 and resistance area around 12 700 – 13 000, potentially gathering momentum before a breakout.

Should the DAX during an increasing market activity starts establishing ground above its resistance area around 12 700 – 13 000, the index might trigger further strength ahead. On the other hand, if the index starts finding ground below support area around 12 700 – 13 000, the index might be about to show further weakness.

In the daily chart below, DAX previously triggered weakness, but bounced back after testing support at 12 000.

Daily chart of the DAX

Its 200-day moving average and significant indicator, potential resistance is currently closely waiting by at 12 747, right above resistance at 12 650. A more significant technical resistance might be located at 13 140.

Stochastics indicator in this timeframe is more or less showing signs of potential strength, but the index might as well turn around and test support at 12 000.

Moving over to the hourly chart below, DAX triggered strength within its consolidation. Short-term strength might continue to dominate in case resistance breaks at 12 500, and around 12 650. The index might however trigger weakness, in case support at 12 370, and around 12 275, as well as 12 000 breaks.

Hourly chart of the DAX                       

Based on a short-term perspective resistance at 12 250 is of interest, followed by resistance at 12 650. Beyond this, further resistance at 13 140-13 150 is waiting by.

Support at 12 370, and 12 275 might also be of interest, potentially opening up for continued weakness to test support at 12 000 – 12 100.


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