DAX index futures are down by more than 1.45% as traders continue worrying about the strength of the German economy. The index is down by ~14% since the second week of the month. This makes it its worst-performing month since March this year.
The DAX index is reacting to the rising number of Covid-19 cases in Germany. Yesterday, the government confirmed more than 16,000 cases, the biggest jump since the pandemic started. That brought the total number of cases to more than 498k and deaths to more than 10,000. The same trend is happening in other countries like France and Spain.
To deal with the pandemic, Germany has put in place measures to halt the spread. It has accelerated testing and announced partial lockdown. Most importantly, the government has said that it could start vaccinations by the end of the year. While this is a good thing, it has warned that the process could take more years.
The pandemic is a bad thing for companies in the DAX index in several ways. First, if it spreads, it could affect the revenue of the constituent companies. Second, it could also force some of them to close their operations as they did in the first quarter.
The DAX is also falling because of the financial performance of the biggest American companies. While Apple, Alphabet, Amazon, and Facebook released better numbers, investors have sold-off Amazon and Apple shares. Indeed, the Dow Jones, S&P 500, and the Nasdaq 100 index have all fallen by more than 2%.
DAX index technical outlook
A look at the DAX index reveals several things. First, like I have written before, the index has been forming a head and shoulders pattern, with the neckline at €12,219. It moved below this neckline on October 26. Second, the index has dropped in the past five consecutive days and is in the lowest level since March.
Also, the Relative Strength Index (RSI) is at its lowest level since March, which is a sign that the index is getting oversold. Therefore, I suspect that the index will remain lower today and possibly bounce back in November.
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DAX index technical chart
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