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The German DAX index has incurred another hugely volatile trading week, with the leading German index hitting a new all-time trading and then reversing sharply lower as United States technology stocks come under pressure.
It is particularly noteworthy that the German DAX is one of the most tech heavy index is in Europe. This means that when the technology sector takes a hit across the pond in the United States, it tends to weigh more heavily on the DAX.
With the United States tech sector under pressure for now, the volatility in the German DAX is set to continue. The release of the FOMC meeting minutes spooked tech stocks as FED members noted that a discussion on QE may be warranted.
What we probably need to see if more weak data and down beat commentary from the FOMC in order to boost tech stock. The technology heavyweights in the United States have hugely benefitted from QE over the last year or so, and I suspect ongoing money printing is going to be needed to push the German DAX above 15,500 on a sustained basis.
At present, bulls continue to defend the 15,000 level, which is encouraging. However, we ideally now need to see the German DAX holding firmly above the 15,500 level to encourage bulls to push the index into a new, and ultimately much higher trading range between the 15,500 and 16,000 levels.
Sentiment is also supporting further gains in the GER30 index. The ActivTrades Market Sentiment tool is currently showing that 56 percent of traders are bearish towards the index. Watch out for further gains in the GER30 while retail traders remain on the wrong side of the recovery and the overall price trend.
German DAX Short-Term Technical Analysis
The four-hour time frame shows that a bullish inverted head and shoulders pattern has formed and is projecting an upcoming move towards the 16,000 to the 16,050-resistance level.
According to technical analysis buyers need to maintain the price above the 15,500 level to activate the bullish pattern. GER30 bulls continues buy into pullbacks towards the 15,100 and 15,000 levels.
Sustained weakness under the 14,850 level would invalidate the bullish pattern and would likely cause a sharp decline towards the 14,100 area.
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German DAX Medium-Term Technical Analysis
Looking at the higher time frames the daily chart shows plenty of scope for upside potential, due to the fact that the index is over half to the target of a massive, inverted head and shoulders price pattern.
As long as the price trades above neckline support, around the 13,780 level, then the breakout is in play, meaning the index has huger upside potential.
This would ultimately imply that the long-term target for the German DAX is around 18,000, meaning that the index could gain more than 2,500 points.
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