DAX building momentum at important levels…

DAX building momentum at important levels…

25. elokuuta 2017 Autor Tradingportalen

German stock index DAX looks to be building momentum within a consolidation, at important levels. Potential positivity could arise if the index starts moving above resistance between 12 340 – 12 400, during increasing market activity. However, if the index would start moving below important support area around 11 934, potential worrying negativity could come to light. Long-term view is still believed to be positive, but negative volume pattern warns for a potential upcoming change in the trend.

During the past week, worries on Barcelona, and Åbo has dampened the risk appetite in the market, even if we have not seen any big movements due to this. Unfortunately, investors might have to get used to these circumstances, that only cause temporary effects in the markets.

More importantly, the development in the DAX has been seen due to the currency market, as the German competitiveness gets less attractive in the international market. The euro has strengthened the last few months against the U.S dollar. Which is probably an important factor why the DAX has lost ground.

Since last week the monthly ZEW sentiment index showed a lower optimism among German analysts and investors. This is probably partly due to the strength in the euro.

When ECB- protocol was released on 20th of July, it was clear that commissioners were a bit more worried of the last few months strength in the euro, compared to previously.

The upcoming Jackson Hole conference in the U.S, will therefore be in focus, when head of European central bank, Mario Draghi talks. Investors are looking at potential statements, that might strengthen the euro further.

Even if ECB might be slightly passive when it comes to the euro, the long-term view for the euro is still believed to be positive relative to the U.S dollar. This might cause challenges for the DAX, and could potentially add further fuel to a negative move.

Based on technical analysis, the DAX index is currently trading at a technical support level, above the underlying trendline. Previous weakness has been shown before, when the index could find ground above previous tops from 2015 at around 12 391.

The turnover in the market has also been higher, during days when the market traded lower. This enhances a probability, that the long-term view might weaken, and potentially start to indicate a negative view.

Weekly chart of the DAX                                                                                                                                     

That is why the technical support level at around 11 934 is in focus. Potential negativity could arise, if the index would break this support area during a time when the market turnover is relatively high. In this case next support area of interest would be around 11 400 – 11 500, and thereafter around 10 800.

Even if we might sound a bit negative, positivity could arise if the DAX would start trading higher, during increasing market activity that finds ground above technical resistance around 12 400, and around 12 951.

In the daily chart below, DAX shows a couple of rejection from the area around the 200-day moving average. The area around the moving area, which is currently located at 11 981, is not uncommonly considered an important support- or resistance area. We also believe that the support area around 11 934, causes this area to be interesting to keep eyes on.

Daily chart of the DAX

The Stochastic-indicator is showing that DAX are no longer oversold. Instead it indicates that it would be more likely for the index to move slightly higher, and the indicator to show an overbought scenario.

Therefor we believe some extra fuel could be required in order to break, and found ground above resistance area around 12 330 – 12 340, and around 12 400 in order to show potential continued strength. Perhaps a weaker euro, could be the trigger? Only time will tell…

If the index would move above or below technical key areas, during low market activity, there is a risk that the movements could be short lived. So be sure to keep an eye on the market activity during potential breakouts.

In the short-term hourly chart below, it is quite clear that the DAX index have had a volatile development. The index has bounced back and forth between support area around 11 934 – 12 100, and resistance area around 12 270 – 12 340.

Hourly chart of the DAX                       

Short-term traders might see this consolidation area as an attractive trading interval. These traders might buy at support around 11 934 – 12 100, and sell around resistance area at 12 270 – 12 340. These traders would most likely take a stop loss relatively fast, should the index start to break out of this consolidation area, to limit any potential loss.

Investors based on a more long-term view, might find it a bit more attractive as an entry point at these support areas, but would as well keep a very close eye on the volume pattern, which is currently negative.

No matter the direction, we are keeping a close eye on the support area around 11 934, as potential weakness based on a more long-term view could arise, if the index starts to trade below this price level.

 

 

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.

17.11.2019 13:53:40