Continued weakness ahead? DAX at significant technical support levels
Last couple of weeks the DAX has continued to feel pressure from sellers. Technically, the long-term trend still looks promising, even if the index is closing in on another significant support area around 12 650 - 12 750. Should the index find ground below this area, continued weakness could be up ahead. In case momentum turns around and push the index higher, it will be interesting to see if it manages to break resistance at 12 880, even if 13 600 is considered a long-term technical level that could potentially be a trigger point for continued strength.
Last week the German market settled considerably lower. The DAX fell -4.2 percent, at closing the week at 12 785.16. So far this year, the index has turned a positive move into a negative move of -1.0 percent.
Earning season did not kicked off in a good manner. To name a few, Daimler fell -2.5 percent, Deutsche Bank fell -5.2 percent after reports. The development in U.S added further weakness on the German stock market.
During Friday U.S showed statistics of a higher increase in salary than expected, causing sharp gains in the treasury market, pushing the U.S market lower.
To add further uncertainty, new management over at the U.S Federal Reserve caused extended questions, weather how to act upon this news. Will the Fed start to tighten its monetary policy earlier than expected?
The global markets are not uncommonly somewhat in sync, and the question is if gains in the treasury market will push stock market lower?
Technically the DAX still looks to be strong based on a long-term view. The index continues to show higher highs and lows, and its 40-week moving average still points higher.
Weekly chart of the DAX
DAX continues to show a pattern of consolidation between support levels at 12 750 – 12 800 and resistance at 13 500 – 13 600. Once a breakout occurs from its consolidation area since November, the index could potentially see a stronger trigger move ahead, though not a certainty.
Moving over to the daily chart below, the DAX triggered weakness within its consolidation area. The index is now trading right above its 200-day moving average, as well as its January low at 12 745. The index has also formed an expanding triangle formation, where its volatility continues to increase.
Daily chart of the DAX
The lower support level within this formation, is currently located at 12 650. In case the index starts finding ground below this technical level, the DAX could potentially be about to show further weakness.
Stochastic indicator is currently at low and technically oversold levels. This is not considered a guideline of strength up ahead, as the index could continue to be technically oversold for a longer period of time within a strong technical trend. Potential reversal and other kinds of momentum signal, is however more likely to trigger interest at such levels.
Long-term technical resistance level at 13 600 might be a trigger point for further strength, especially if this key level is broken during a time when the index shows considerably high trading activity.
The hourly chart below holds an interesting short-term technical resistance at 12 880, potentially opening up for next resistance at 13 140-13 200. In this short-term time perspective, support at 12 780 could be of interest.
Hourly chart of the DAX
Long-term investors might keep an eye on resistance at 12 880, 13 140 – 13 200. As well as support at 12 850.
In a scenario where the DAX breaks support at 12 780, support at 12 650 might be of interest.
In a more long-term perspective, current market sentiment is interesting. The long-term technical view continues to be holding up, even if the index has shown technical weakness lately. The index is also trading right above significant technical support levels, and it will be very interesting to see when such levels break, especially if it happens during a time when trading activity picks up considerably.
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