State of DAX for Calendar Week 42
Welcome to another episode of the blog post series "State of DAX". It is October the 23th and we've only 5 trading days left in October. So far this month has brought us a small turn around because it seems like the small correction has found an end. But how healthy is the current development and what's the short-term outlook?
Technical Chart for DAX
As usual, we'll start with the technical chart for DAX, created on tradingview.com:
The index has been trading sideways within a range of 1000 points since April this year. On October the 15th, the DAX managed to break through the trendline/flag and also climbed above the important level of 15 500. Also, the SMA 200 still acts as a comfortable level of support and the index is expected to stay above this line.
Let's zoom into the chart:
The index climbed above the SMA 20 and tested it on the same day (14th October), which was a good confirmation of the short-term price movement. Also, the upper Envelope band was touched, but not crossed. This way, the index can still be seen as not overheated.
Regarding the RSI on the daily time frame, note that it crossed one trend line, but did not manage to get through the second one yet. Usually, crossing an RSI trend line can be seen as a strong signal. Also, the RSI is still above 50.
Let's look at the hourly chart to see what happened during the last trading days:
I've marked this week's narrow trading range on the chart by putting in two orange lines (dotted). The range goes from 15390 to 15600. A breakout above this range, confirmed by a close (daily time frame), would give enough confidence to test the 15 700 and 15 800 resistance zones.
A decline below 15 390 would mean that the technical picture is getting weaker again, but it is not the preferred scenario at the moment.
Quick summary: Technically, the situation is positive and the outlook might become even better when the current narrow trading range is left (daily close above 15 600).
Market Breadth Data for DAX
A look at the DAX40 is not complete without considering its current market breadth data:
What's incredible about the market breadth chart for DAX above is that it contains a year of data. This helps to put the current situation into a better context by comparing it to the past.
The McClellan Oscillator for DAX has been above the zero line for a while now, confirming the positive development.
The McClellan Summation Index has been rising, thus giving positive signals as well.
Quick summary: Market breadth data confirms the positive development.
SMA Market Breadth Data for DAX
A look at market breadth would not be complete without looking at how
many members/components of the DAX40 trade above their SMA50, SMA 100
and SMA200:
Currently, 45% of the DAX components trade above their SMA 50 (last week: 40%),
Currently, 45% of the DAX members trade above their SMA 100 (last week: 52,5).
Currently, 60% of the DAX components trade above their SMA 200 (last week: 62,5%).
1/3 indicators improved compared to last week, 2/3 declined.
This might reflect the sideways trend we've seen this week, but also this could mean that the index will see a mini-consolidation before rising above the current levels again.
Summary
My statement from last week is still valid:
Formally, and based on my opinion, the DAX must overcome the old
falling high at ~ 15 700 to end the ongoing correction. But we already
see that the index started its recovery, and at least at the moment it
would be unlikely that the correction will be continued with lower
lows.
To prevent overheating, the DAX needs to execute a small pull-back before rising further (or a short sideways consolidation).
Outlook: ➡
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