Despite fears about rising inflation in Europe and a looming energy crisis, somehow the German DAX has managed to eke out price gains this week and is looking towards the 13,000 level.
Much of the recovery has been driven by falling energy price, with oil dropping, and global markets remaining optimistic that the Fed will not be as aggressively as feared when they hike rates next.
Recently, the Ger40 has set a new major low as the former 2022 price floor was broken. The previous low was obviously made as the Russia and Ukraine conflict moved into official war mode.
Going forward, it is extremely hard to see how high the Ger40 can rise. Seller will be lurking due to the dismal economic backdrop that Europe finds itself in as an energy crisis approaches.
Looking at sentiment towards the DAX is almost neutral with just 51 percent of traders expecting more gains. This provides the conditions for a continuation of range bound trading activity.
Overall, if bulls are able to get above the 13,000 level in the coming trading days and weeks it should be raising a red flag for more gains in the GER40 index towards the 13,600 area.
GER40 Technical Analysis
The GER40 index has formed a falling channel pattern the four-hour time frame. This usually means that a continuation of the ongoing bullish directional move is still going to take place.
A break above the 13,000 level could turbo charge the German DAX in future, as the target of the pattern is a huge upside target of approximately 13,600.
The daily time frame shows that the German DAX looks very uncertain after a head and shoulders pattern has been fully activated. This is part of the reason why the Ger40 is bouncing from a technical standpoint.
The final confirmation needed for a medium-term buy signal is sustained move above the psychological 13,800 resistance level. However, I suspect traders have now turned into rally sellers, and this could spell trouble long-term for the leading German index.