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The German DAX index hit a new all-time trading high this week, following the release of positive economic data from the German economy, and a drop in the COVID-19 infection rate in Germany, and also globally.
German DAX bulls cheered as the monthly jobs data from the German economy showed that unemployment dropped by -15,000. This helped underpin the notion that the domestic economy is improving, and a consumer led recovery during the summer months could be on the horizon.
It is particularly noteworthy that the May German manufacturing PMI came in better than anticipated, with a solid 64.4 print. The manufacturing sector remains the heartbeat of the European, and indeed the German economy.
And finally, the German DAX was inspired to rally towards the 15,886 area this week as the German COVID-19 infection rate continues to fall. The latest COVID-19 data from Germany showed that the 7-day incident rate dropped to 31.4.
Looking at sentiment data, retail traders are trapped on the wrong side of the market as the German DAX continues to breakout. The ActivTrader Market sentiment tool shows that GER30 traders are currently 69 percent bearish towards the index.
Based on historical data, retail traders tend to lean against the prevailing trend and have poor market timing. Therefore, with the current breakout and sentiment skew, I expect a continued breakout in the GER30 while sentiment holds this negative.
GER30 Short-Term Technical Analysis
The four-hour time frame shows that the German DAX has formed a large, inverted head and shoulders pattern, and bulls are starting to make traction above the neckline of the pattern.
According to the overall size of the pattern the German DAX could be about to rally by around 700 points. Watch out for the breakout to remain in place while the price trades above the neckline of the pattern, around the 15,530 level.
GER30 Medium-Term Technical Analysis
Looking at the weekly and monthly time charts, a major technical breakout took place from a large, inverted head and shoulders pattern in March, which continues to point to a coming rally towards the 18,000 area.
I would expect the pattern to eventually play out to its full upside potential. My confidence is increased as the index is starting to break to fresh all-time high, and lower time frame analysis is also pointing to more gains towards 16,200.
