DAX at a sensitive location in a sticky situation…
DAX continues to show strength, despite being technically overbought. In case DAX breaks support and moves lower, the market could be looking at an even lower move in case market activity picks up.
The past week has continued to show further development in the market. On Wednesday, the German DAX closed at 12 970.68, gaining +0.5 percent since last week, and +13.0 percent so far this year.
DAX seems to be in a slight waiting mode, before the upcoming earning season. The state of the market has been fired up, and given optimism before the upcoming reports. Increasing risk appetite has been dominating the market the last couple of weeks around the globe, which has fueled the German market also.
The weaker U.S. Dollar could be a potential trigger, luring around the corner. This increases the attractiveness and German international competitiveness, and therefore could be a positive factor. Based on a short-term move, there is a slight consolidation, and slight buyers in the market. A stronger Euro however could beat down Euro exporting markets.
Previous worries surrounding North Korea has currently calmed down, which has caused increasing optimism of a potential tax reform, and higher debt ceiling in the upcoming months. The weaker euro pushing the dollar higher has been due to the Catalan independence election in the Spanish region.
A stronger euro, since the Catalan independence election has shown signs of hesitation, and Trumps heated discussion with senator Bob Corker is deemed to potentially struggle with the passing of a U.S. tax reform.
Long term trend for the DAX, looks to be still positive. In the weekly chart below, the index triggered strength when it broke from previous highs from 2015. DAX is currently trying to find momentum enough, to find ground above summers high of 12 951. DAX is currently trading right above this price level, but so far only marginally. Based on a long-term perspective, further strength could be up ahead, in case it starts finding more clear ground above this level.
Weekly chart of the DAX
The market gain continues to be during a time of relatively low market activity, causing the strength to be questioned. DAX is also based on a more long-term weekly perspective starting to look slightly overbought technically. This on its own is not considered to be a sign of weakness, but increases the probability of a potential bounce.
Daily chart below shows that DAX is currently trading around summer highs, and tries to break out. In case DAX finds ground above the sentimental 13 000 level, the index could be looking at increasing market activity and further gains. Based on a short-term technical view, there is room for such a move.
Daily chart of the DAX
The continued negative volume pattern is still a factor to be considered. The index is technically overbought, which means the DAX is in a sensitive location at a sticky situation. Upcoming earning reports are also causing slight awareness and potential weaker U.S. Dollar.
Potential breakouts, are therefore considered to be a potential guideline, of strength or weakness up ahead. It could be a very attractive move, in case the breakout occurs during a higher market activity, compared to previous strength during times when the index has moved higher.
In case DAX breaks the trend line currently located at 12 900, the market might look at weakness up ahead, possibly fueling even further weakness if the index breaks support at 12 650 – 12680, 12 300-12 340, 12 400 and around 11 850 – 11868. As usual the MA 200 trading located at 12 244 is also considered to be of utmost importance to consider.
In the hourly chart below, short-term consolidation has continued. DAX is gathering momentum before an upcoming move, and potential strength could come to light in case it breaks resistance at 12 997, preferably 13 000.
Hourly chart of the DAX
Based on a more short-term perspective the area around consolidation and trading interval floor 12 900 is very interesting to keep an eye on, as well as technical resistance at around 13 000.
In case the DAX will find clear ground above resistance around 13 000, the market could look at further gains, but if the index starts moving below 12 984, further weakness could instead be up ahead.
Based on a more long-term perspective the continued negative volume pattern is causing current state of market to hesitate. Technically the index is overbought, but upcoming earning season could be a potential trigger up ahead. Nevertheless the future development remains to be seen.
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