DAX Index is About to Transition to DAX 40 – Time to Buy?

The DAX index is relatively unchanged as investors remain concerned about US stimulus. The index is also bracing for more changes following the Wirecard scandal. It is trading at €12,815, which is above yesterday’s low of €12,700.

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US stimulus hopes fade

Hopes of a US stimulus deal was one of the main reasons why the DAX index rose yesterday. Investors were reacting to a positive statement by Nancy Pelosi, who confirmed that she was having talks with Steve Mnuchin.

Yesterday, the two leaders held a meeting for one hour but left without a deal. Although the talks will resume today, there are concerns that the divide between the two are relatively wide. The White House has rejected the $2.2 trillion package that House Democrats passed last week. It has instead proposed a $1.5 trillion deal that will also face challenges in the senate.

A stimulus deal will be positive for companies in the DAX index because of the volume of business they do in the United States. For example, autos like Daimler, Volkswagen, and BMW count the US as one of their biggest regions.

DAX index readies for significant changes

The DAX index is also reacting to news that Deutsche Boerse is considering expanding the blue-chip index. The idea is to shift it from DAX 30 to DAX 40 by adding ten more companies. Also, the nature of the companies that will be added will change. Some of the changes will be about profitability. The new entrants will need to be both big by market cap and by profitability.

The goal of these rules is to prevent the problems like those caused by Wirecard. Indeed, part of the new rules will be to have a special audit committee to ascertain that the firms meet the requirements. You can read the new requirements for the DAX here.

Top movers in the DAX

Most companies in the DAX index are in the green today. MTU Aero, the engine-maker, is the best-performing firm having moved by 2.3%. It is followed by Deutsche Bank, BMW, Volkswagen, Continental, and Fresenius. On the other hand, the key laggards in the DAX are Vonovia, Bayer, Merck, and SAP.

DAX index technical outlook

The daily chart below shows that the DAX 30 has been moving sideways in the past few weeks. In this period, it has remained between the support of €12,365 and the resistance of €13,446.

As a result, the index is at the 25-day exponential moving average. Also, it is along the pivot point. Therefore, in the near term, I suspect that the index will remain between this channel. As such, the key levels to watch are the first support at €12,244 and the resistance at €13,445.

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DAX index technical chart

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