GER30 Technical Analysis – Dip buyers rewarded

The German DAX has staged yet another powerful rebound back towards the 15,200 level, after receiving strong dip-buying interest was seen from the second time in less than a week from around the 14,800 level.

It is particularly noteworthy that the German DAX remains robust in the face of selling below the 15,000 level, as the index continues to benefit from traders’ veracious appetite for European equities.

Inflationary pressure coming from the United States could be a double-edged sword for European stock markets. Inflation could transfer into higher prices, higher wages, and higher company earnings.

However, inflation is sometimes categorized as too much money, chasing too few goods. Looking at the bear side, an increase in interest could come quicker than expected if inflation continues to ramp up.

This could prompt the ECB to act quicker than expect, which could cause a rotation out of stocks, and into bonds. A lot will depend on the coming EU and German CPI inflation data releases.

Bullish targets abound on the weekly chart, with the 18,000 level still flagged as a long-term target for the German DAX. With the technical looking bullish and the German economy coming out of lockdown it is probably too early for a bear market in European stocks.

Looking at sentiment, retail traders are still on the wrong side of the trade. The ActivTrader Market sentiment tool shows that GER30 traders are very bearish, with 59 percent of market participants holding a negative bias towards the GER30. I expect a continued recovery in the GER30 while sentiment holds negative.