2009 Trendline in Focus as Index Aims Higher

DAX 30 Forecast:

• Last week the DAX 30 enjoyed support from a trendline drawn off the index’s 2007 high
• Now, risk appetite has reemerged as investors assess implications of the various fiscal responses
• Should bullishness continue, maintaining price action above the various trendlines may prove crucial in a prolonged recovery attempt

DAX 30 Price Outlook: 2009 Trendline in Focus as Index Aims Higher

Stocks continued to rebound on Wednesday following massive fiscal stimulus packages to combat the coronavirus and its adverse economic impact. In the case of the DAX 30 and Germany, officials have expressed a willingness to do whatever it takes to keep the economy afloat. Coupled with the $2 trillion package from the United States, price action would suggest investors have begun to wade back into the market. As a result, the DAX 30 has moved off the lows it established last week as it aims higher – for now.

DAX 30 Price Chart: Weekly Time Frame (2007 – 2020)

In turn, the index will have to surmount nearby resistance if it is to continue higher. The first barrier to an extension is an ascending trendline derived from the index’s 2008 lows – currently existing around 9,640. That being said, a daily close above the level on Wednesday is an encouraging sign moving forward and may provide the DAX with a base from which it can attack the psychologically significant 10,000 mark slightly higher. If both are successfully breached, an ascending trendline from the 2011 and 2018 lows may be the next major area of resistance for the German equity index.

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Either way, traders will have to sustain price action above the ascending line in the coming days for it to regain some semblance of its influence prior to the bearish break. Further still, lingering volatility should make consistent directional moves more difficult to establish. That, coupled with persistent uncertainty, could see the DAX 30 turn lower in the coming days. Should bearishness return, maintaining price action above last week’s low near 8,000 will be critical in warding off a deeper retracement.

Despite trading comfortably within a bear market, short-term rallies are not unheard of. While governments and central banks have made a substantial effort to buoy their respective economies, it seems illogical to suggest equity valuations should return to levels prior to the crash.

Then, economic outlooks were being revised upward and global travel was flowing steadily. Now, an average citizen in most developed economies cannot go to a bar, restaurant, book travel or even go outside without the goal of fulfilling an essential need. Thus, I suspect bearishness to resume in the days ahead for the DAX and overhead resistance offers an attractive opportunity to reduce long exposure or explore bearish trading opportunities. In the meantime, follow @PeterHanksFX on Twitter for updates.

–Written by Peter Hanks, Junior Analyst for DailyFX.com

Contact and follow Peter on Twitter @PeterHanksFX