DAX consolidates within a declining trend

21.03.2018 | 2 min lukea

The German DAX index is in a consolidation area and is gathering strength for potential bigger moves ahead. If the DAX would start finding ground over resistance area at 12 600- 13 000 during an increasing volume this could indicate further strength. However, the index has previously shown several long-term weaknesses and the long-term trend is starting to turn downwards. In the case the index establishes under support levels at 11 830 this could possibly be a signal of weakness ahead.

Last week German market showed an irregular trend. DAX index rose by 0,4 percent and ended the week at 12 389,58. The decline so far this year has thus been reduced to -4,1 percent.

More dramatic movement last week came when US President Donald Trump somewhat surprisingly fired his foreign minister via Twitter. This caused uncertainty about the political course ahead, including the proposals for increased tariffs. It also increased the focus on the unstable situation in the highest political leadership of the world’s largest economy.

The world’s stock exchanges reacted negative due to this turn of events. However, the German market recovered in the end of the week with main contributors such as sports company Adidas and car company Volkswagen.

There is a certain pending attitude on the German market ahead of the upcoming reporting period, starting in the middle of April. This reporting period could potentially give a forewarning of what to come in the near future.

In the weekly chart the DAX showed long-term weakness when it broke support levels at 12 750- 12 800 and its positive trend line, in the beginning of February. In addition, the index lies under its 40-week moving average, which is now starting to point downwards.

Weekly chart of the DAX                                                                                                                                     

Should the index eventually start making ground under the important support levels at 11 830, this could be an indication of weakness. If the DAX, during an increased volume, manages to establish over resistance at 12 700- 13 000, the index might be about to show long-term strength.

Stochastic indicator shows that the DAX is just like last week still technically oversold.

In the near future there is an increasing possibility that the DAX could come to consolidate in the area between 11 830- 12 700 for a while. As the 40-week moving average has begun to point down this could potentially be a signal of weakness ahead.

In the daily chart this consolidation area is clearer. The index has recently shown signals of potential weakness but is now between support area at 11 830 and resistance area at 12 600.

Daily chart of the DAX

In the hourly chart the DAX might be about to show strength if resistance area at 12 450 is passed. Further indication of strength would possibly be obtained if resistance at 12 600 is broken.

Hourly chart of the DAX                       

In the case the index turns down and makes ground under support levels at 12 340, 12 160 and 12 000, DAX might trigger weakness.

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