Balancing on significant support levels

Balancing on significant support levels

4. joulukuuta 2017 Autor Tradingportalen

German stock index DAX, is currently balancing on significant technical support levels around 12 810 – 12 850. Based on a long-term technical perspective, trend looks to be intact and strong, and based on a more short-term perspective the index is technically oversold. Potential positive news flow might trigger a move on the up side, in case this support area holds up. In case DAX starts moving beyond the resistance level at 13 210, and around 13 525, the index could be looking at a potential positive trigger, trading even higher.

Last week the German market moved lower during relatively low trading activity. The DAX closed the week at 12 861.49, -1.5 percent lower.

The German government continued to negotiate the past week, without any major breakthroughs, but at least they are still communicating, which is considered to be positive on the market sentiment.

Last week did show slight weakness, triggered from U.S, when former national security advisor Michael Flynn stated he was ready to testify against the U.S president Donald Trump. Flynn claims, Trump has insinuated him to keep contact with Russian officials during the presidential campaign. Troubling news for the U.S elected president, that could potentially make it harder to pass any upcoming tax reforms within the senate. Overall this lowered the risk sentiment last week, weakening global markets as well as the German DAX.

The U.S tax reforms is believed to kick off the economic growth in the country, but even so from a global perspective. The only problem to be considered is, that these tax reforms is somewhat considered to be included within the last market gain since the U.S presidential election, putting sentiment in the market at somewhat risk, as it can quickly swift sentiment in case these tax reforms falls short.

After the market close, republicans passed through tax reforms in the senate, which should hopefully fuel positivity in the market, even within the German market sentiment. Potentially the DAX could be looking at strength this week, moving away from last week’s weakness.

Based on a long-term technical perspective, looking at the weekly chart below, DAX is still considered to be trading within a positive scenario. The index is however, balancing at significant support levels around 12 850 – 12 920. As long as this support area holds up, the index could be looking at strength up ahead. The index is also continuing to show a clear pattern of higher highs and lows, and is trading well above its 40-week moving average.

Weekly chart of the DAX                                                                                                                                     

Contradicting potential strength up ahead, is seen within the stochastic indicator. The trend based on this indicator has slowed down, and could potentially indicate weakness up ahead, but is not considered to be a strong signal on its own.

Based on a long-term perspective, in case the DAX starts finding ground above resistance level around 13 525, specifically during an increasing market turnover could be considered attractive, potentially fueling further strength up ahead.

Looking at a narrower time frame, the daily chart below, DAX is currently consolidating in a scenario where the lows has a way of finding lower and lower grounds. In case DAX starts finding ground below support level around 12 810, the index could be looking at further weakness up ahead, specifically in a scenario where the market activity picks up.

Daily chart of the DAX

On the other hand, in case DAX during increasing market activity finds ground above resistance around 13 210, the index could be looking at further strength, potentially closing in on significant resistance at 13 525.

In this time frame, the Stochastic indicator is showing a technically oversold scenario, opening up for a potential bounce.

Closing in on an even narrower time frame, the hourly chart below, last weeks weakness triggered further weakness. All in all, the DAX is even in this scenario consolidating, putting potential weakness up ahead at risk, in case it breaks support at 12 810.

Hourly chart of the DAX                       

Based on a short-term perspective, the index could be looking at strength, in case it breaks resistance at 13 025, but an even attractive move could be if the index breaks resistance at 13 210.

All in all, resistance at 13 025, 13 210 is considered to be interesting, as well as in case the index starts closing in on support at 12 810.

Even the sentimental 13 000 is certainly interesting, as it might trigger certain volatility.

 

Important legal information

 

Legal notice

This information is in the sole responsibility of the guest author and does not necessarily represent the opinion of Bank Vontobel Europe AG or any other company of the Vontobel Group. The further development of the index or a company as well as its share price depends on a large number of company-, group- and sector-specific as well as economic factors. When forming his investment decision, each investor must take into account the risk of price losses. Please note that investing in these products will not generate ongoing income.

 

The products are not capitalprotected, in the worst case a total loss of the invested capital is possible. In the event of insolvency of the issuer and the guarantor, the investor bears the risk of a total loss of his investment. In any case, investors should note that past performance and / or analysts' opinions are no adequate indicator of future performance. The performance of the underlyings depends on a variety of economic, entrepreneurial and political factors that should be taken into account in the formation of a market expectation.

25.1.2020 7:43:30

 

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