Strength appears in DAX, but continues to show signs of weakness

20.10.2017 | 1 min lukea

Strength appeared in DAX when the index started trading above the sentimental 13 000 level. The trend looks to be continuing, but the market is technically overbought.

The German market continued to be on slight hold, with a relatively low market activity ahead of this week’s start of earning season. German DAX index gained +0.5 percent, and closed on Wednesday at 13 015.07. So far this year, the index has gained +13.4 percent.

First and foremost, the current earning season, has created a vacuum of waiting sentiment on the market lately, beyond the quiet news.

After the previous election, no clear resolution surrounding forming a new government has taken place in Germany. Will it be a coalition government? The options are quite a few, but the road ahead could be far from straight, as the current negotiations seems to be moving ahead very slowly.

Despite having the euro trading considerably strong against the U.S dollar, except second quarter, it has continued to consolidate based on the bigger picture. German competitiveness has therefor been slightly lower, which will be interesting to see how it pans out based on companies earning reports.

The DAX looks to be still trading with strength, and in the weekly chart below the index looks to be finding ground above this summer’s highs, which is sending signals of potential continued strength up ahead.

Weekly chart of the DAX                                                                                                                                     

So far, the market activity has not picked up during the last gain. This is sending signals that long-term capital strong investors might be on hold. In order for any continued long-term strength to be established, this market activity has to be significantly higher.

Should these long-term investors get back into the picture and start buying the market, this should appear in forms of significantly larger market turnover than lately experienced. Maybe this will come to light during earning seasons, when investors retrieve more clear signals of how domestic companies are performing?

Stochastic-Indicator based on a long-term perspective shows that DAX is technically overbought. This is not a clear sign of weakness on its own, but is increasing an awareness that the index could be venting out buyers up ahead.

Preferably DAX should not start trading below support area around 12 900 – 12 950 during significant market activity compared to the last market gain, as this could be sending a signal of more significant weakness up ahead.

In case significant weakness comes to light, DAX could be looking at testing support at 12 400, and around 11 850 – 11 868. As always, any strength or weakness in any direction up ahead, will be getting considerably less attractive if the market activity continues to be relatively modest.

In the daily chart below DAX previously showed strength, and looks as it is about to find ground above 13 000. This could on its own be sending further strength, based on sentimental reasons alone.

The market activity has unfortunately continued to be relatively modest during last market gains. This negative volume pattern is of course worrying, but could be cleared up once earning season is up in full order.

Daily chart of the DAX

Even here Stochastic-indicator shows a technical overbought scenario for the DAX. In case DAX would start trading below support area around 12 900 – 12 950, during increasing market activity the index could be looking at more significant weakness up ahead.

Technical support is then waiting at 12 650 – 12 680, 12 300-12340, and around 11 850 – 11 868. Around this area the 200-day moving average is also trading, currently located at 12 281.

Even in the short-term hourly chart the DAX looks to be trading strong, and continues to show signs of reoccurring strength. Last sign of strength appeared when the index broke resistance at 13 039.

Hourly chart of the DAX                       

Based on a short-term perspective, weakness could come to light in case DAX breaks from above, but more importantly if support do not hold up at 12 964, around 12 984-12 900, and around 12 849.

Based on a more long-term perspective however, the volume pattern continues to be negative despite that the index shows potential strength up ahead.

It is a bit of a tricky situation, where more significant volume in any direction could be clearing up the clouds on the road ahead.



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