There has been a resurgence of confidence in the DAX over the last few days which has been reflected in the price, as bulls drive the market higher. Investors who have been bullish on the German market this year took their opportunity to buy value around the 11328 level which was an almost 50% correction in price since the announcement of Quantitative Easing from the European Central Bank back in late-January. Confidence has also been bolstered by stronger economic data and earnings releases from Germany’s top companies.
Yesterday figures showed that the eurozone’s manufacturing sector expanded again in April. Data firm Markit, which surveys more than 3,000 manufacturers across the eurozone, said that its purchasing managers index was at 52.0 for the month, down from 52.2 in March, but still higher than the 51.9 figure previously estimated by Markit. This is tandem with Germany’s upbeat factory activity, with it’s Manufacturing PMI number coming in at 52.1 vs 51.9 estimate, saw inflows of capital back into Germany’s largest Index with the DAX edging higher. This movement in price was further fueled by Audi (pun intended), the profit engine of Europe’s largest automaker Volkswagen, who said on Monday that its first-quarter operating profit rose 8.2% to €1.42 billion.
Today we have had earnings from Adidas whose operating profit rose 12% to €345 million euros and an increase in Revenue of 17% to €4.08 billion. Tomorrow we have Eurozone Markit Service PMI data at 09:00 GMT, on Thursday there are more earnings releases from Commerzbank and Siemens (the largest weighting in the DAX) and on Friday the monthly U.S. Non-Farm Payrolls – always a closely watched statistic.
With the Fundamentals aside let’s move onto the Technical Analysis of the DAX. Looking at the Hourly chart of the DAX below, one can see it was near it’s 50% retracement level of 11316, hitting a low of 11328 last Thursday. Since then price has reclaimed the 11457/11467 zone, the Hourly 1oo moving average (blue line in chart below), the key 11595/11606 zone and just recently made an attempt on the 11750/11775 zone.
(click to enlarge)
CONCLUSION – NEUTRAL
The DAX has failed to close above it’s Hourly 200 MA (green line in chart above) & the 11750/11775 zone but has travelled 225 pips versus it’s 22 day trading range average of 230 pips, so resistance around this zone is to be expected. Also,the 11750/11775 zone is a very important area for the bulls to reclaim. Since the beginning of March, price had closed below this area on only one occasion, the 17th April. But then, on the 29th April, the Index collapsed. So in the days and weeks ahead, price needs to get above and stay above this zone.
For bulls, price needs to close above the Hourly 200 MA for the bias of the market to change from bearish to bullish. The more risk averse investor can look for opportunities to enter the market at this level as it is easy for one to define risk against. Long term bulls will be buying any dips in price against the 11606/11595 zone and below that the Hourly 100 MA.
For bears, opportunities with defined risk reside against the Hourly 200 MA, the 11750/11775 zone or on a close below the 11595 level.
Bearish targets :-
- 11606 (Top end of key zone)
- 11556 (Daily Pivot Point)
- 11524 (Daily low)
Bullish targets :-
- 11713 (Daily R1 Pivot)
- 11749 (Daily high & into key zone)
- 11815 (Daily R2 Pivot)