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DAX index rally rans out of gas as billionaires warn on valuations


The DAX index declined by more than one per cent as the market reacted to a series of mixed news from around the world. Other Asian and European indices like the FTSE 100, CAC 40, and Hang Seng also declined today. Similarly, US futures like the Dow Jones and the S&P 500 index also continued the losses made yesterday.

DAX index falls as billionaires warn on valuation

Part of the reason why the DAX index fell today was statements from influential players in the market. While most of those who spoke are from the US, investors believe that the same case can be made for German stocks. In an interview on Tuesday, Stan Druckenmiller, who is a protégé of George Soros, said that the risk-reward of owning shares was the worst he had ever seen. He also rubbished claims that the world would have a V-shaped recovery.

David Tepper, another influential investor also issued a warning about stocks. The hedge fund manager, who owns a $13 billion hedge fund, said that valuation of stocks had jumped to the highest level since 1999.

In a warning, Druckenmiller said that the recent rally in stocks was mostly because of the liquidity brought about by the Fed. He believes that this will soon run out. Similarly, these statements came on the same day that the Fed chair warned of risks in the market.

German stocks fall on global risks

German stocks also fell because of the rising risks in the global market. Some of the risks moving the DAX index are the simmering trade conflict between the United States and China and the risks of second wave of the coronavirus pandemic.

DAX biggest winners and losers

Most companies in the DAX were in the red today. The biggest winner was Henkel, the cleaning giant whose shares rose by 1%. It was followed by Deutsche Telekom; whose shares rose by 0.50% after it reported a good quarter. Its EBITDA rose by 10% to $7 billion while revenue rose by 2.3% to 19.9 billion. Most importantly, the company said that it would meet its forward guidance.

On the other hand, the worst performers in the DAX index were Daimler, Volkswagen, and E.ON. Deutsche bank shares dropped after the Fed warned its US operations.

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DAX index technical outlook

The DAX index is trading at 10,328, which is lower than the April high of 11,340. On the four-hour chart, the price has moved below the 100-day and 50-day exponential moving averages. It has also continued its descent after it found significant resistance at the 50% retracement level of 10,888. This price action shows that bears are winning, which is a sign that it may continue moving lower to the 38.2% retracement level of 10,180.

On the other hand, a move above the 100 and 50 EMAs would signal that there are still more buyers in the market. This action would invalidate this thesis.