Potential weakness up ahead for the DAX…?”

Potential weakness up ahead for the DAX…?”

22. syyskuuta 2017 Autor Tradingportalen

German DAX has previously showed strength, and is currently believed to be within a positive trend. Short-term the index is technically overbought, and the market move has been during a time with relatively low market activity. This could be a potential trigger for a lower move up ahead. Potential strength might come to light, in case DAX finds ground above resistance around 12 600 – 12 680, and around 12 951. If the index would break support around 12 245 – 12 340, 12 050 and around 12 850- 12871 we might be looking at further weakness up ahead. In case support and resistance break during increasing market activity, the move might be even more significant.

The German DAX index moved slightly higher during the past week, and gained modestly +0.3 percent by closing at 12 569.17 on Wednesday. So far, the index has gained +9.5 percent this year.

Focus up ahead is the election on Sunday 24th of September. Merkel looks to be winning the election, according to polls, but would be requiring an ally to form a government. The question is who that will be?

The main question is really, due to previous polls that allies have a bad track record. Unsurprisingly liberals and socialists are hesitating at the moment.

All in all, the past week gained at least slight risk appetite amongst investors. This due to less concerns surrounding North Korea, potential trade war between U.S and countries dealing with U.S, debt ceiling in U.S, and hurricanes in southern parts of U.S, as well as a weaker dollar.

Even if upcoming tightening of monetary policy from central banks, a dark cloud is alluring over the markets, until current worries has been put to sleep. This has caused several markets, even the German DAX to move higher from technically oversold territory.

In our weekly chart below, DAX showed previous strength when it broke resistance area around 12 300 – 12 400. Stochastic indicator within a more long-term perspective less technically oversold as before. Currently the DAX is also trading at resistance area around 12 600 – 12 680.

Potential strength might come to light, in case the index would find ground above this resistance area. Right above this area, previous all time high is also closely awaiting another test of 12 951.

Weekly chart of the DAX                                                                                                                                     

Underlying strength when the market has moved higher, has continued to be relatively low. This is causing potential further momentum to be considered limited, based on a more long-term view.

It is therefore very interesting to see if support will hold up around 12 300 -12 400, as if it breaks during increasing market activity, we might be looking at further weakness in the near future.

In case significant technical support would break around 11 850 – 11 871, our view might turn more to the downside, as any further lower move could be more of a significant character.

Even in the daily chart, DAX have been showing signs of further strength lately. Namely when the index broke resistance around the trendline at 12 200, and horizontal resistance around 12 340.

Daily chart of the DAX

Interestingly DAX has during a higher move now turned to a more technical overbought situation according to Stochastic indicator. This in itself is not considered a trigger for a potential lower move up ahead, as the indicator can continue to be overbought for a longer period of time during a strong trend.

In case of a more hawkish tone from central banks, we could be looking at a potential trigger up ahead, as the index is currently in a sensitive location.

Potential strength could come to light, in case the index breaks resistance at around 12 600 – 12 680, and around 12 951. On the lower side, we want to see support holding up at around 12 245 – 12 340, 12 050, and around 12 850 – 11 871, in order to avoid potential continued weakness.

A few times already, the DAX has bounced around the area of its 200-day moving average, currently located at 12 143. Therefor this price level is of significant interest to keep an eye on.

Based on a more short-term time frame, the hourly chart below indicates that DAX is currently located within a technical positive trend, but that we are currently consolidating with underlying signs of strength.

Hourly chart of the DAX                       

Potential breakout out of this consolidation is of particular interest. Potential short-term strength could be triggered if resistance breaks at 12 614. Potential short-term weakness, could instead come to light in case support does not hold up at around 12 518, and around 12 489 – 12 500.

Based on a more long-term view, we are keeping a continued close eye on the market activity, as well as key support and resistance levels.

In case the index starts showing real strength, during significantly increasing market activity, we might be looking at an even stronger momentum in the market. But until then, we preferably would like to see support holding up at around 11 850 – 11 871, as if this breaks during relatively high market activity, we might have to look the other way.

 

 

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19.7.2019 16:22:06