DAX on shaky ground and could be due for breakdown

The German DAX (daily chart shown below) ended lower on Thursday after Wednesday’s tumble from nearly a three-week high just above 10500. Since August’s precipitous dive saw the index drop a full 20% in less than three weeks down to a low in the 9300’s, the DAX has been in a choppy rebound mode.

Up to the noted 10500-area high on Wednesday, this rebound has retraced 50% of August’s plunge. Despite this rebound, the index has struggled to recover due in part to ongoing concerns over China’s economic growth and financial outlook.

In line with other major global indices, the DAX has lately been quick to fall and slow to recover as market fears have remained elevated largely as a result of these China concerns.

For the first time this year, the index’s 50-day moving average crossed below its 200-day moving average in the beginning of September, a bearish technical indication that could presage a change in trend momentum to the downside.

Furthermore, the DAX has formed what could be considered to resemble a large, inverted pennant or wedge pattern, where August’s plunge forms the pole of the pennant and the shaky rebound since late August forms the actual pennant consolidation.

In the event of a breakdown below the lower border of this pennant, bearish momentum could precipitate a return back down to the noted 9300-area lows of August. Projected further down, a drop below 9300 would confirm a continuation of the downtrend from April, potentially moving towards major downside support around 8500, which was last hit in October of last year.

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.