DAX Index

German DAX Index Inches Closer to a Bullish Breakout

The German DAX index is little changed today as the market assesses the economic situation in Europe and the United States. Investors are also watching the situation about the European budget, which was vetoed by Poland and Hungary this week. The index, which contains the German blue chips, is trading at €13,135.

Covid cases rising

The American and European economies are struggling as the number of new cases continues to rise. Yesterday, the US confirmed more than 160k new cases as more states moves to implement lockdowns. The impacts of the current wave was seen yesterday, after the US released weak retail sales numbers.

In Germany, the curve has started to flatten, even as experts call for more lockdowns. The country confirmed more than 14,419 cases, which is an improvement from last week’s high of 23,542. Still, the number is still high and the number could increase if the government eases the current restrictions.

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As I have written before, the current situation is not good for companies in the DAX index. This is because lockdowns mean that companies will face a challenge being productive. They will also face challenge selling their products.

Mixed European car registrations

Meanwhile, the DAX is wavering as traders react to the relatively weak European car registration data. In the United Kingdom, car registrations dropped by 1.5% in October from the same period last year. That was a better performance compared to the 4.4% decline in September. In Italy, car registrations dropped by 0.2% while in Germany, registrations fell by 3.6%.

German stocks are also reacting to the EU budget crisis. In a statement, the country’s economy minister, Heiko Maas, said that he remained optimistic that a solution will be found. That is after Hungary and Poland vetoed the budget because it tied funding to compliance with democratic standards.

The best-performing stocks in the DAX are Deutsche Boerse, Adidas, Deutsche Wohnen, and Vonovia. These firms are up by more than 0.70%. On the other hand, the top laggards are MTU Aero, Bayer, Beiersdorf, Continental, and Henkel, among others.

DAX index technical outlook

The strong rally of the DAX index has recently hit a barrier. On the daily chart, we see that the index is trading at €13,137, which is an important resistance level since it was the highest level in July and September.

Therefore, the current hesitation is because of profit-taking and the fact that some bulls are not convinced that the rally will continue. Still, the index seems to be forming a bullish pennant pattern, which is usually bullish in nature.

Therefore, while the index will likely end the day at the current level, in the near term, it will break out higher and possibly test €13,500. The stop or invalidation point for this trade will be at €12,668.

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