DAX Index is in a Holding Pattern – Is It Ready To Take Off?

Dax Index
Dax Index

The DAX index is wavering today as investors reflect on the recent rally in global stocks. The index is trading at €12,904, which is about 0.25% higher than its yesterday’s close. Other indices in Europe are also wavering, with the FTSE 100, CAC 40, and Stoxx 50 up by less than 0.30%.

There is no major catalyst for the DAX index today other than the fact that the euro has pared back some of the gains it made yesterday. A weaker euro is usually a good thing for the DAX because of the global nature of the constituent companies like Daimler, Volkswagen, and BMW.

The DAX is gaining a day after the S&P 500, the giant American index turned positive for the year yesterday. The index has gained by more than 50% from its lowest level in March this year. These gains have mostly been because of a rally in technology companies like Amazon, Apple, and Microsoft. In recent weeks, cyclical stocks like those in energy and financials have also been in an upward trend,

The DAX index is also gaining because of the potential for an economic recovery. A better economy, especially in Europe, the US, and Asia are positive things for the DAX index because companies like Volkswagen do a lot of business in these countries.

Most companies in the DAX index are in the green today, with E.ON, Fresenius, Infineon, Henkel, SAP, and BMW being the best performers. On the other hand, RWE AG, Continental, Adidas, and BASF are the only firms in the red today. RWE has fallen by more than 3.5% after the company announced a new rights issue to fund its purchase of Nordex, the wind turbine maker.

DAX index technical outlook

The daily chart below shows that the DAX index has been in a strong upward trend since March, when it dropped to €8,260. The price is now slightly above the 78.6% Fibonacci retracement level. It is also above the 50-day and 25-day exponential moving averages. Most importantly, the price is inches above the ascending trend line that is shown in green.

Therefore, I expect that the index will remain in an uptrend so long as the price remains above this trend line. A move below the line at €12,768 will invalidate the uptrend. This price is also along the 25-day EMA.

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DAX Index Daily Chart

DAX Index

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