DAX Market Analysis, May 2020

In April, DAX continued its recovery from massive drop in March - from lowest point, DAX rose +23% in March and another +11% in April (from March close), with April ending at level 10820. Most of April’s gains happened already on first week of April and from there the index was in a fairly wide range without clear direction. Level 11300 was tested on the high side and yearly Support S2 pivot level 10200 on the low side, and this level also held. Many were expecting that DAX would at least retest March low before major correction upwards, hence the strength of upwards correction, and 10200 level holding, was unexpected to many of us.

Technically speaking, DAX index continues in bearish mode, in monthly chart (below), exponential moving EMA6 average is clearly below EMA12 and DAX is below both averages. For technical analysis, situation is unclear; yearly S2 pivot (10200) continues as a significant level as DAX can retest it on short notice. Also from a macro economical point of view, situation is unclear: we now start to see the impacts of the COVID-19 pandemic to corporate earnings but on the other hand the historically large support from central banks is providing market with significant new liquidity that is easily funneled into stocks. We found an interesting reference from spring 2008 where chart patterns and EMA levels were very similar to current situation. Back then the rebound was followed by a major leg down, however central banks’ and governments’ role was not as significant as it is today, i.e. the situation is not comparable.

Monthly chart long term support levels: 9300, 8000
Monthly chart long term resistance levels: 11400, 12330, 13500

DAX weekly chart below with monthly pivot levels shown. Also in this time frame DAX remains bearish but not as strongly, index above EMA6 and EMA12 test (11000-11100) is quite possible if the correction upwards continues. If trend turns back down, first significant test will be monthly pivot level at 10100 and if it fails, there is potential for significant additional drop as monthly Support S1 pivot level is at 9700. There is also room on the upside, weekly simple moving average SMA200 has often been a level of support and it is currently at ca 12000, so it is quite likely that we see continued high volatility.

Medium term support levels: 10500, 9700, 8600
Medium term resistance levels: 11600, 12370

Investors’ sentiment in USA is still heavily on bearish side, however not as much as it was a month ago. Volatility in S&P500 index is still on a very high level but has come down significantly from the March high - this is usually considered as a bullish sign (yellow line above).

Above: May has been historically a neutral month for DAX.

Above: Split of Shares in DAX index trading above and below their respective DMA20 daily moving average. Percentage of shares above their DMA20 is quite high, this is a bullish sign but may also mean that room to move further up is limited on short term.

Above: McClellan oscillator is also bullish. Indication is now at level 100, so it is possible that the strength of growth will weaken somewhat over coming weeks.

Above: Summary of technical indicators for DAX. Short and medium trends indicate buy while long trend remains in sell.

Above: Historical weekly changes for DAX in May and early June.

Above: DAX volatility remains on a high level. This is often a bearish sign as it indicates that traders are unsure which way the market will go.

Above: Summary of the main world futures: Short and medium term indicators are neutral, Long term indication remains in s