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Dax Index Bearish on a Break Below 13,800

DAX
DAX

Dax index opened the year on a strong note, as it made new highs. However, the recent price action suggests a possible toppish formation, although it is too early to tell at this point in time. The possible rising wedge has major implications moving forward, especially if the price manages to break and hold below 13,800.

The Dax index represents the largest companies in Germany – Europe’s largest economy. The second wave of the pandemic hit Germany hard, with the infection rate surging to unprecedented levels. As such, the country entered lockdown mode until the end of January.

However, today, Germany’s Chancellor, Angela Merkel, announced that the lockdown is likely to extend to April. More precisely, she said that the country needs another eight to ten weeks of strict lockdown measures. No matter how you put it, this means that the first quarter is compromised, and the stock market should reflect such reality as earnings will be affected.

Dax Index Technical Analysis

So far into the trading year, the Dax index benefited from a relatively lower Euro exchange rate. The EURUSD eased from the highs, supporting the stock market.

The pattern seen below may easily be a rising wedge, but also a running triangle. Therefore, to avoid wrong positioning, traders should focus on a close below 13,800 before going short with a stop loss at the highs and target twice that distance to the downside.

Dow Jones Daily Chart