Short-term weakness triggered in DAX

15.11.2017 | 1 min lukea

Short-term weakness triggered in DAX, opening up for further weakness in case support breaks at 12 900. Long-term trend still looks to be strong, fueling potential further strength sooner or later, in case resistance at 13 100, 13 200 and around 13 525 breaks.

German stock market moved significantly lower during the past week, from a previously technically overbought location. German stock index DAX fell -3.0 percent, closing at 13 074.42 on Monday evening. So far this year, the index has gained +13.9 percent.

It looks like these lower move is due to profit taking, from a previously strong period, initiated by potential international economic growth, fueled by potential U.S tax reform modifications and future promises.

This was confirmed last week, when republicans in the senate presented a tax reform, diverging from proposal by republicans in the House of Representatives. Among others, tax reduction for U.S company tax will be put on hold until next year in the senate proposal.

Future will likely continue to be followed up by more or less dramatic runs surrounding the U.S presidents tax reforms. Last year’s international market gains, were in many ways fueled by potential stimulus and economic growth expected from these tax reforms, meaning the outcome of this reform is significantly important to both the state of the market in U.S and Germany.

Even the German market has moved lower this past week, the long-term trend for the DAX index continues to look strong. DAX shows a long-term pattern of higher highs and lows.

Weekly chart of the DAX                                                                                                                                     

Last week’s potential warning signs are still here, and the Stochastic indicator in the weekly chart shows that the German market is still located in a technically overbought location. Volume pattern continues to be on the negative side, potentially highlighting that long-term buyers are currently on the side line.

The current lower move, most likely coming from profit taking, has not resulting in any significant weakness. Potential weakness in the weekly chart, could come to light in case the index breaks support area around 12 900 – 13 000. Until such a scenario might appear, the index in this time perspective, is still showing strength.

Looking at the daily chart below, the DAX during the past days broke a positive trend line and support level at 13 100. In this timeframe the index triggered short-term weakness, and it will be very interesting to see if support area around 12 900 will hold. In case this support area holds, the index could be looking at another run at resistance area around 13 525.

Daily chart of the DAX

In case DAX starts finding ground above this area around 13 525, during relatively high market turnover, this signal of potential strength would be considered quite attractive.

Stochastic indicator in the daily chart gave during the past week a signal of potential weakness, but is currently in a neutral position. No clear clues are given in case support at 12 900, will hold or not.

In the hourly chart below DAX also showed short-term weakness when it broke support at 13 460, and around 13 405.

Currently DAX is trading just below a resistance area around 13 100. In case resistance holds, the index could be looking at weakness ahead, especially if it starts trading below support at 12 960, and around 12 910. In case DAX starts finding positive momentum and starts trading above resistance around 13 100 and around 13 200, the index could be looking at further strength ahead.

Hourly chart of the DAX                       

An attractive trading interval between support 12 960, and resistance 13 100 for short-term traders has appeared, looking for potential turning points at these key levels.

In case DAX breaks support at 12 960, and around 12 900 weakness could appear, but potential strength could come to light, in case the index starts finding ground above resistance at around 13 100, and 13 200.

Based on a long-term perspective, short-term weakness were triggered, and the index is still technically overbought, and volume pattern is still on the negative side.

Long-term trend however, is still believed to be strong, potentially signaling this short-term weakness might be just that, short-term.



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