Is the DAX heading into a bear market?

Germany flag
Fiona Cincotta
By :  ,  Senior Market Analyst

The DAX is on track to lose over 5% this week after dropping 6% in February. The index has fallen into correction territory, down more than 10% from its recent high and is staring straight at a bear market.

The DAX trades down 16% from its January high, while a bear market is entered into when the market falls 20% from its recent high, so we are not there yet, but neither the fundamentals nor the technicals look good right now,

Fundamentals

 

Germany is very dependent on Russian energy. While Western sanctions haven’t been directly on the energy sector, fears over supply disruption, as buyers shun Russian exports, have sent commodity prices across the board sharply higher. Gas prices are now ten times what they were this time last year. High energy prices can directly translate into slower growth and higher inflation - stagflation.

While peace talks have started again in Belarus, no one is holding their breath for a quick resolution. In the meantime, Russia continues its barbaric bombardment of Ukraine, and the West keeps ratcheting up sanctions.

Technicals

 

The DAX has been forming a series of lower highs and lower lows since the start of the year. The index trades below a steep descending trendline and below its 50 & 100 sma. The 50 SMA recently crossed below the 100 SMA in a bearish signal, and the RSI points to more losses while it remains out of oversold territory.

Today, the DAX fell to 13650, the February 2021 low, and the support is still holding at the time of writing. However, a break below this level could see 13250; the 2021 low come into play.

DAX chart

 

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