DAX about to show strength?
German DAX index continues to consolidate, as well as to be short-term technically oversold. Potential strength could come to light in case the index during an increasing trading activity finds ground above resistance at 13 200.
Last week German market continued to show an irregular development. The German DAX index gained +0.5 percent, closing the week at 13 059.84. This year’s gain is there for now at +13.8 percent.
Despite a bit more political uncertainty in Germany, the market kept calm.
Politic situation in Germany and its government negotiations has reached a deadlock, causing any government coalition to less likely happen. The past month negotiations have taken place between Merkel party coalition CDU/CSU, FDP and the Greens, in order to form the so-called “Jamaica coalition” (name based on colors of the parties).
The alternatives are now a minority government, led by CDU/CSU, or that Angela Merkel will resign as chancellor, causing the country to be up for potential reelection. A minority government is considered to be less likely, and that it is more likely to be a reelection, especially due to its bad experience during its second world war.
Investors does not seem to consider a new government and potential reelection in Germany as a problem, or that it would damage the views for its country’s economic state.
Last week’s gain in the euro compared to the U.S dollar has not given any significant negative fuel to the markets, but could potentially happen if the strength in the euro continues.
The long-term technical trend continues to be strong for the German market. Looking at the weekly chart below, DAX continues to show a clear pattern of higher highs and lows. The index is also trading well above its 40-week moving average.
Weekly chart of the DAX
Stochastic-indicator could potentially be a risk factor, as it has shown signs of weakness up ahead. The volume pattern continues to be on the negative side, and the index is consolidating right above a significant technical support area around 12 850 -12 950. As long as support holds up, the technical view seems to be more on the positive side.
Potential strength could come light in case the DAX instead starts finding ground above resistance at 13 525.
Looking at the daily chart below, DAX continues to consolidate. Potential weakness might be in order in case support would break at 12 848 – 12 920. On the other hand, if the index starts moving above resistance at 13 209 – 13 217, further strength could be in order, especially if it happens during a time where the trading activity picks up.
Daily chart of the DAX
At this time frame the Stochastic indicator shows that the German market is technically oversold. This could potentially increase the probability for any short-term strength, which could get further fuel in case the index starts breaking resistance levels.
Looking at a more short-term time perspective, the hourly chart, potential weakness could be in order in case support at 13 040 breaks. Despite this, support at 12 920, and 12 848 is considered to be more significant, and might be more interesting to keep track of. The index might be looking at positive momentum and strength in case resistance at 13 209 – 13 217 breaks.
Hourly chart of the DAX
In this time frame, support at 12 920, and resistance at 13 200 could be an interesting trading interval.
All in all, support at 12 920, and 12 848 is considered to be interesting to keep an eye on, as it might be a trigger point of potential further negative fuel.
As the index is still believed to be in a technically positive trend, the index might be about to show further strength in case it finds ground above 13 200, especially in case it happens during a time where trading activity picks up.
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