Balancing on significant support levels

04.12.2017 | 1 min lukea

German stock index DAX, is currently balancing on significant technical support levels around 12 810 – 12 850. In case DAX starts finding ground below this support level, weakness could be up ahead

Last week the German market moved lower during relatively low trading activity. The DAX closed the week at 12 861.49, -1.5 percent lower.

The German government continued to negotiate the past week, without any major breakthroughs, but at least they are still communicating, which is considered to be positive on the market sentiment.

Last week did show slight weakness, triggered from U.S, when former national security advisor Michael Flynn stated he was ready to testify against the U.S president Donald Trump. Flynn claims, Trump has insinuated him to keep contact with Russian officials during the presidential campaign. Troubling news for the U.S elected president, that could potentially make it harder to pass any upcoming tax reforms within the senate. Overall this lowered the risk sentiment last week, weakening global markets as well as the German DAX.

The U.S tax reforms is believed to kick off the economic growth in the country, but even so from a global perspective. The only problem to be considered is, that these tax reforms is somewhat considered to be included within the last market gain since the U.S presidential election, putting sentiment in the market at somewhat risk, as it can quickly swift sentiment in case these tax reforms falls short.

After the market close, republicans passed through tax reforms in the senate, which should hopefully fuel positivity in the market, even within the German market sentiment. Potentially the DAX could be looking at strength this week, moving away from last week’s weakness.

Based on a long-term technical perspective, looking at the weekly chart below, DAX is still considered to be trading within a positive scenario. The index is however, balancing at significant support levels around 12 850 – 12 920. As long as this support area holds up, the index could be looking at strength up ahead. The index is also continuing to show a clear pattern of higher highs and lows, and is trading well above its 40-week moving average.

Weekly chart of the DAX                                                                                                                                     

Contradicting potential strength up ahead, is seen within the stochastic indicator. The trend based on this indicator has slowed down, and could potentially indicate weakness up ahead, but is not considered to be a strong signal on its own.

Based on a long-term perspective, in case the DAX starts finding ground above resistance level around 13 525, specifically during an increasing market turnover could be considered attractive, potentially fueling further strength up ahead.

Looking at a narrower time frame, the daily chart below, DAX is currently consolidating in a scenario where the lows has a way of finding lower and lower grounds. In case DAX starts finding ground below support level around 12 810, the index could be looking at further weakness up ahead, specifically in a scenario where the market activity picks up.

Daily chart of the DAX

On the other hand, in case DAX during increasing market activity finds ground above resistance around 13 210, the index could be looking at further strength, potentially closing in on significant resistance at 13 525.

In this time frame, the Stochastic indicator is showing a technically oversold scenario, opening up for a potential bounce.

Closing in on an even narrower time frame, the hourly chart below, last weeks weakness triggered further weakness. All in all, the DAX is even in this scenario consolidating, putting potential weakness up ahead at risk, in case it breaks support at 12 810.

Hourly chart of the DAX                       

Based on a short-term perspective, the index could be looking at strength, in case it breaks resistance at 13 025, but an even attractive move could be if the index breaks resistance at 13 210.

All in all, resistance at 13 025, 13 210 is considered to be interesting, as well as in case the index starts closing in on support at 12 810.

Even the sentimental 13 000 is certainly interesting, as it might trigger certain volatility.


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