DAX 40 Index Technical Outlook: Roadblock Ahead, For Now

DAX, German DAX Index – Technical Outlook:

• In recent months, the DAX index has held strong support on the weekly charts.
• From a short-term perspective, the index is running into stiff resistance.
• What is the outlook and what are the key levels to watch?

DAX SHORT-TERM TECHNICAL FORECAST – NEUTRAL

The sharp 20% gains since October suggest that the medium-term bullish fortunes of the German DAX Index haven’t changed much despite this year’s losses. However, in the short-term the index could retreat a bit given overbought conditions.

On the weekly charts, the DAX Index in September held quite strong converged support: the 50% retracement of the 2020-2021 rally and a horizontal trendline from early 2022. Retracements of 38.2%-50% are generally considered reasonable after a strong bull run, and not necessarily bearish.

{{GUIDE|THE_FUNDAMENTALS_OF_BREAKOUT_TRADING}}

DAX INDEX Weekly Chart

Chart Created Using TradingView

Moreover, despite the broader selling pressure, the index was hovering at the top end of a declining pitchfork channel since 2020. This means that from a multi-month perspective, the index remained in its ‘top gear’, even though on smaller timeframe charts, the weakness was more pronounced (see Weekly chart).

After posting a near two-year low, the index this month has broken above a key ceiling: the 89-day moving average (for the first time since early 2022), a downtrend line from early 2022, and the 200-day moving average. This confirms that the downward pressure has faded.

DAX Daily Chart

Chart Created Using TradingView

From a near-term perspective, though, the index has run into a pretty stiff hurdle: the 89-week moving average and a downward-sloping trendline from March 2022, not too far from the top edge of the pitchfork channel. This raises the odds of a short-term retreat, potentially toward the 200-day moving average (now at about 13580). The long-term moving average, which coincides with the mid-September high, could provide a fairly strong floor for another leg higher.

— Written by Manish Jaradi, Strategist for DailyFX.com