DAX technically overbought, but continues to show sign of strength…

06.10.2017 | 1 min lukea

In case the index finds ground above 12 951, there could be another higher move.

German DAX index gained +2.9 percent the last week, and closed at 12 970.52 on Wednesday. So far this year the German index has gained +13.0 percent on a year-to-date basis.

At most, DAX traded at a new all time as high as 12 976.24, due to increased risk appetite.

The U.S dollar stopped losing against its currency pairs, and more or less has bounced back a little. Both German and international competitiveness for German companies therefor gets positive fuel due to a stronger dollar, which pushes the DAX even higher.

The stronger U.S dollar against the euro is believed to be triggered slightly due to the German election, which complicates an upcoming reform of a government in Germany. Earlier strength out of the win from Macron in France, has also lost its previous momentum. Part of the current momentum has come from optimism surrounding Trumps potential tax reform and tax cuts. This could stimulate the U.S economy, as well as let large companies move off shore capital back to the country, which could also be positive to the dollar.

In the weekly chart below, DAX is considered to still be trading in a positive trend, based partly on previous strength. Further momentum might come to light, in case DAX starts finding ground above previous all-time high at around 12 951. On Wednesday, the DAX closed at 12 970, slightly below this level. The index could find a little more ground above this price level, in order to see potential further strength.

Weekly chart of the DAX                                                                                                                                     

There was modest strength during the gain, which could be signaling that long-term investors might be a bit passive at the current state. The market is believed to be moving higher, due to short-term investors, and because long-term capital strong investors are on hold.

In order to see any confirmation in the current strength, there could be long-term investors step in and start buying at a larger scale, since the current state with low market activity is putting a lid on this potential. Until any confirmation of strength comes to light, a quick turnaround could appear up ahead. However the future development remains to be seen.

Even based on a short-term perspective it is all about riding the trend, any potential negative signal of breaking current momentum, is of outmost interest. Especially if this appears during a time when the market activity picks up. This could open up for potentially a more significant lower move.

In our daily chart below, there could be further weakness, in case DAX breaks support at around 12 650 – 12 680, as well as 12 300-12 340, and 12 400, and around 11 850 – 11 868. The area around 200-day moving average, currently located at around 12 207, is an interesting support level to keep track on.

Daily chart of the DAX

Stochastic-indicator continues to indicate a technical overbought scenario, which is likely not considered as an upcoming weakness on its own. It does however enforce the sentiment of a potential weakness up ahead, in case there could be further weakness elsewhere.

Based on a more short-term perspective, DAX in the hourly chart below has continued to show strength lately. In case the market would see support at 12 850 breaks, there could be short-term weakness. In such a scenario, the next technical support level at around 12 650 could get important.

Hourly chart of the DAX                       

In case any weakness comes to light during increased market activity, there could be increased volatility up ahead.

Based on a long-term technical perspective, DAX could to be trading within a positive trend, despite showing a negative volume pattern.



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