Investment Idea

DAX about to break consolidation?

12/12/2017 | 1 min read

German DAX could potentially be about to break its past few weeks consolidation. Potential strength might come to light in case DAX during increasing market activity finds ground above resistance area around 13 210-13240.

Last week the German market moved higher, giving the DAX momentum for a total of 2.3 percent gain, closing the week at 13 153.70. So far this year, the index has gained +14.6 percent.

The past week gained positive momentum, after U.S senate passed its package of the economic stimulus tax reform, pushing the German market even higher.

The week gained even further strength by the end of the week, when banks found strength after suggestion on upcoming Basel rules were published, which looks to be less of an impact than previously expected. This left positive fuel to the larger German banks, which has a few of them listed on the exchange.

Beyond this, Brexit negotiations had a breakthrough, easing up market sentiment even further. On top of that, the U.S congress has decided that, at least for now to avoid any federal shutdown in the country, giving further time up until 22 of December. Up until then the congress needs to figure out another solution, so that financial markets would not come to worry.

Turning the view to a more technical aspect, long-term DAX continues to look positive. Looking at the weekly chart below, the long-term trend signals strengths. Index is trading well above its 40-week moving average, which is also showing technical strength. As noted last week, the index also continues to show a long-term pattern of higher highs and lows.

Weekly chart of the DAX                                                                                                                                     

Due to the higher move the past week, DAX is now trading well above its significant technical support area around 12 810-12900. The index might be looking at even further strength, in case the index would find ground above the resistance level at 13 525.

Stochastic-indicator signals a warning sign at the weekly chart, that the index might be about to lose positive momentum. This on its own is not considered to be a sign of weakness on its own, but it might be worth keeping a closer eye on the support area mentioned before.

Moving on to a more shorter time frame, the daily chart below DAX looks to be about the potentially break out of its past weeks consolidation.

Daily chart of the DAX

In case the index finds momentum enough to find ground above resistance area around 13 210-13 240, DAX could be about to move even higher. If such a scenario occurs, the signal is considered to be strengthened in case it happens during a time when the market activity picks up relatively significantly. Such a scenario opens up for a potential higher move, putting next resistance at all time high 13 525 at risk.

Should a scenario of weakness start to come to light, significant support area is closely waiting at 12 810-12 900.

Looking at an even shorter time frame, the hourly chart below, it is even more clear in regards of a breakout attempt in DAX.

Hourly chart of the DAX                       

All in all, the DAX could be about to show potential further strength, should the index break resistance at 13 240.

In case weakness starts dominating the DAX, short-term interesting support area might be at risk at around 13 080.


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