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The German DAX staged an impressive weekly open on Monday, with the index opening around 150 points higher than its former weekly price close, and then advancing to a new all-time record price high.
Positive news surrounding the United Kingdom and the European Union signing a Brexit deal, accompanied by United States President Donald Trump signing the latest $900 billion COVID-19 relief package caused traders to turn bullish towards the Ger30 index, as fears over these key risk events are now swept aside.
According to the ActivTrader Market Sentiment tool, the amount of traders that are currently long the Ger30 is around 27%, meaning that the trade is not overcrowded at the moment. In fact, Market Sentiment towards the current rally is pretty bearish.
Typically, professional traders will look to fade extreme market sentiment readings amongst the retail crowd as they are known to lean against trends or indeed enter into established trends towards the end of the cycle.
Market Sentiment data also shows that some 73% of traders are currently short the Ger 30, which suggests that the currently rally in the index has legs to run much-higher.
Additionally, the current technicals surrounding the Ger30 on the higher time frames are very bullish at the moment, and are certainly favorable for more gains in the index as we head into 2021.
GER30 Short-Term Technical Analysis
The four-hour time frame shows that a large head and shoulders pattern has recently been invalidated, following the early-week advance above the 13,780 resistance level.
According to technical analysis, the invalidation target is found by measuring the head of the bearish pattern down to the neckline. With this in mind, the German DAX could be preparing to rally towards the 14,560 level over the short-term.
Source by ActivTrader.
A notable price gap has also formed on the charts, which could be a particular worry for bulls if the Ger30 starts to trade below the 13,780 level this week, or at the start of 2021.
Lower time frame analysis shows that the gap extends down towards the 13,600 area, if indeed bears are going to close the gap before the index heads higher again.
GER30 Medium-Term Technical Analysis
Looking at the daily time chart, the breakout above the highs from earlier this week has triggerd an extremely large inverted head and shoulders pattern on the daily, weekly, and monthly time frames.
The overall size of the bullish price pattern on the daily time frame suggests that the German DAX could rally towards the 16,300 level over the medium-term horizon.
Source by ActivTrader.
Perhaps more worrysome for the bears, an even larger inverted head and shoulders pattern can also be seen on the weekly and monthly time frames, and point to even more sustanial gains ahead for the index.
The larger pattern is projecting an potential rally towards the 18,500 area over the long-term, which suggests the Ger30 could be going into overdrive in 2021.
