Dax Index

DAX Index Starts Correction Phase of the Elliot Wave Pattern

The DAX index is in the second day of straight losses. The index is down by more than 2% after it dropped by less than 1% yesterday. Other indices in Europe are in the red too. The FTSE 100 has dropped by more than 1.52% while the CAC 40 has fallen by almost 2%. The Stoxx 50 has fallen by 2.10%. Similarly, in the United States, futures tied to the Dow Jones and Nasdaq are down by 157 and 120 points.

DAX index reacts to rising tensions between the US and China

The main reason why the DAX index is falling today is the rising tensions between the US and China. As the two most powerful economies, the impact of a new cold war would have immeasurable impacts on companies in the DAX index. That is because most of these firms like BMW, Volkswagen, and Daimler do a substantial amount of business in the two countries.

The tensions have been ongoing during the Trump administration. But in January, after months of talks, the tensions cooled off. In recent weeks, Trump has reignited his criticism of China as the number of coronavirus cases have jumped and his polls have declined.

The tensions reached a new level this week after the US ordered China to close one of its embassies in the US. Earlier today, China retaliated by ordering the US to close one of its embassies.

Top movers in the DAX index

All companies in the DAX index are in the red today. The biggest loser is Infineon whose shares have dropped by more than 5%. Wirecard shares have fallen by more than 5% after the former CEO was arrested. Other top losers on the index are SAP, RWE, Fresenius, MTU Aero, and Deutsche Boerse. All these shares have dropped by more than 3%.

On the other hand, Vonovia, Beiersdorf, Deutsche Wohnen, and Daimler have performed relatively better. They are all down by more than 1%.

DAX Index technical outlook

Throughout this week, I have written that the DAX index has been in the fifth part of the Elliot wave. Now, it seems like the index has moved into the correction wave. As you can see below, the index formed a doji pattern on Tuesday. This doji is usually a bearish signal.

Also, the index has dropped for two consecutive days. Therefore, it may continue to fall as bears attempt to fill the first corrective wave. If this happens, the index could move to the 61.8% retracement level at 11,617 and then resume the upward trend.

On the other hand, if the price moves above Tuesday’s close of 13,310, it will invalidate this corrective wave.

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