The German DAX is starting to test its trend defining 200-day moving average once again, as the recent parabolic recovery towards the 15,800 area fizzles out of new COVID-19 lockdown fears.
Stock markets across the globe are experiencing turbulence, so the DAX is a natural candidate for downside volatility as the German economy is led by its productive manufacturing sector.
Should see weakness below the 200-day moving average, and further stocks weakness the would be if either omicron variant fears result in strong risk-off trading or if the Fed signalled a fast pace of coming rate hikes for next year.
Both of these situations could weaken stocks heading into year-end. And let’s not forget that German equity traders also the ECB meeting to contend with this week, which is likely to be on the dovish side.
Overall, traders should expect more losses if we see the 200-day MA, at the 15,470-level broken, with the 15,300 and 15,000 levels the major downside targets. Failure to move past 15,600 this week should be considered a further warning sign.
Looking at sentiment towards the DAX, a slight bullish bias is in play with 58 percent of traders expecting more gains. This is the not ideal conditions for a major market rally, as traders are still bullish, despite the pullback from the weekly high.
Overall, with COVID-19 and tapering fears rising, the slight bullish sentiment and weakening technical around the 200-day MA should be raising a red flag for perma GER30 bulls.
GER30 Technical Analysis
The four-hour time frame shows we are currently seeing a bearish head and shoulders pattern starting to unfold, following bulls failure to make a major new high last. I believe the 15,800 level is the key upside breakout level to watch now for bulls.
To the downside, the 15,000 level is huge, and indeed this the area where we could see a cascade of German DAX weakness if bears hold the price below this key technical area.
The daily time frame shows that the German DAX has no real areas of present price divergence on both the RSI and the MACD indicator. However, the presence of the bearish head and shoulders pattern on the four-hour time frame is alarming as it predicts a drop sub-14,000.