DAX outlook: Stocks drop on China – Technical Tuesday

Welcome to Technical Tuesday, a weekly report where we highlight some of the most interesting markets that will hopefully appease technical analysts and traders alike. In this week’s report, we are getting technical on the DAX outlook as the German index has sold off to create a bearish-looking price candle on its chart.

Chinese markets drag on sentiment

In recent weeks, we have seen Chinese markets and some key commodity prices like crude and copper all struggle, while the US markets has just kept on rising. Today, that trend continued. A gauge of Chinese shares traded in Hong Kong fell into a bear market and we saw crude oil prices fall over 4% on the session. Yet the Nasdaq again outperformed as it broke to a new high for the year, amid optimism surrounding AI, although it too was coming off its best levels at the time of writing.

European stocks slip

European markets fell throughout the day and many of them – like the German DAX index – have created some bearish-looking price action on their daily charts as a result. The FTSE, for example, fell about 0.9% to hit a fresh two-month low, as energy stocks slumped, tracking lower oil prices, while miners were sold as demand concerns persisted.

DAX outlook: Technical Analysis

The Germany 40 index, which is based on the underlying DAX index, turned lower to settle near the lows of the day by the time of the EU market close, giving back about 150 points worth of gains from the day’s highs. The reversal means the popular index is now displaying an inverted hammer on the daily time frame, suggesting that the bearish momentum that was in place for much of last week until Friday’s sharp rebound, has resumed.

At the time of writing, though, the index was testing support around 15900, the base of Friday’s rally.

The bulls will want to defend this area to maintain some sort of control. If support holds and we see a rebound this could pave the way for a move to a new all-time high.

But judging by how quickly the recent breakout to a new all time high above the peaks of 2022 and 2021 (which were very close to each other) failed to hold last Monday, it appears as though the bears are more in control of current price action than the bulls. With Chinese markets and commodities struggling, stocks could follow suit and head lower in the coming days.

Therefore, if the bulls fail to hold their ground here then we could see the DAX stage a much deeper correction. As a minimum, I would then expect to see the index then drop to test the bullish trend line that come in below the shaded horizontal support area on my chart. But the potential for a deeper correction is there.

Source: TradingView.com

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