State of DAX - Calendar Week 36

Another seven days have passed since the last episode of our blog post series about the "State of DAX". This time we're looking at a trading week with a small loss (> 1%) while we are in the middle of a period with weak seasonality. Corona, Afghanistan, upcoming elections here in Germany, challenges for the economy, inflation and "interest angst" - there is plenty of reason for investors to stand on the sideline. Oh, and at the end of this month, we will be looking at the DAX 40 instead of the DAX 30. There will be much to talk about in the next weeks!

 

But let's focus on the state of the leading German stock index by looking at the data.

Technical Chart for DAX

 

DAX technical chart created at tradingview.com
 

On last Thursday, the DAX touched the lower Envelope band, giving a short-term and small "oversold" signal. On Friday, the index managed to gain some ground again, moving away from the Envelopes, but still remaining ~1,34% below the SMA20.

 

The orange lines in the chart above mark the ongoing trend, which is pointing downside. This looks like a normal consolidation to me.  

 

The lower band of the Envelopes also cross the area around 15 400, which is an area of support. The DAX should not fall below this area.

The area above the current price, around 15 800, has become a barrier for this index and needs to be reconquered before escaping from the current (slightly) bearish levels.

From a technical point of view, the DAX looks unattractive and points downwards.

The risk is limited, though. The SMA currently is around 14 800 and on the way to this level, there are multiple support levels, including an already verified trendline which is not shown in the technical chart above. Distance to SMA 200 is ~ 4,9% and it is unlikely that the index will decline that far during the next weeks. However, please know that the DAX has not been that close to the SMA 200 since November.

Market Breadth Data for DAX

Market Breadth Data for DAX provided by www.advance-decline.net

At this chart, the index (represented through a line, not candles) did not touch the lower Envelope band (yet). Still, the index moves slightly above oversold levels.

The Advance Decline Line for DAX shows no clear divergences.

The Advanced vs. Declined data for DAX has been in some sort of downtrend, reflecting the weak phase we're currently having.

 

The McClellan Oscillator for DAX declined to -2. During consolidation, the index usually doesn't fall much further after having reached this level. Anti-cyclical traders could speculate on a bottom.

The McClellan Summation Index for DAX switched to negative values, also reaching a level which reminds me of the last two dips we've seen with this indicator. But at this index, it doesn't look like a bottom yet, so a further decline can be expected.

Unfortunately, this time I don't have a graph containing the percentage of DAX components trading above their SMA 50, SMA 100 or SMA 200. The data provider is not able to provide data for the individual DAX members today. Maybe we will have this part on the chart again next week.

But I managed to collect the data for the last trading day on Friday by hand, so here it is (this time also with some important EMAs, as seen on https://wyca-analytics.com:

• SMA distance:
  
• The percentage of DAX components trading above their SMA 50 declined to 36,67% from 43% last week
• The percentage of DAX components trading above their SMA 100 declined to 40% from 53% last week
• The percentage of DAX members trading above their SMA 200 declined to 53,33%, compared to 70% from last week
• EMA distance:
• % of DAX members above their EMA 21: 33%
  
• % of DAX members above their EMA 50: 37%
  
• % of DAX members above their EMA 200: 63%
  

Market breadth certainly looks weaker this Sunday than it did last week. Especially the percentage of DAX members trading above their SMA 200 declined sharply, and is not near the important 50% level.

If you are into cyclical trading/investing, this phase is not for you. The DAX certainly is in a weak phase and we don't know if we've seen the bottom of the consolidation yet. However, if you are looking for a good time window for middle- and long-term investments, this might be a good chance.