The German DAX has been in, with the leading German index breaking back above the 14,000 level this week, and subsequently lowed back towards the technically important 14,600 region.
Despite fears about rising inflation in Europe and the ECB performing a much-needed interest rate hike this or next month, the leading German index has stormed back with momentum.
Much of the recovery has been driven by positive news from China. The Government started to pull back on restrictions in regard to COVID-19, with many lockdowns coming to an end in major cities.
Monetary support from the Chinese Government also boosted sentiment. When the Chinese Government starts to announce supportive measures we often see global stock markets rallying.
Going forward, the German DAX index needs to hold above the 14,000 resistance level. This key technical zone has acted as a huge market pivot point for much of this and last year.
Looking at sentiment towards the DAX, a bearish bias is still in play with 66 percent of traders expecting more losses. This provides the conditions for a continuation of the recent recovery.
Overall, if bulls are not able to defend the 14,000 level in the coming trading days and weeks it should be raising a red flag for more losses in the GER40 index towards the worst levels of the year.
GER40 Technical Analysis
The GER40 index has formed a bullish double-bottom price pattern head and shoulders on the four-hour time frame. This usually means a strong continuation of the ongoing directional move is still going to take place.
A break above the 14,900 level could turbo charge the German DAX in future, as a large, inverted head and shoulders pattern would be ignited, with a huge upside target.
The daily time frame shows that the German DAX looks very uncertain, and it trades back towards the neckline of a head and shoulders pattern that has previously been fully activated.
The final confirmation needed for a medium-term buy signal is sustained move above the psychological 14,900 resistance level. Meaning that a new bullish trend will then be well underway on the daily time frame.