The German 40 index (cash) has recently been navigating a downward trajectory within a channel, following its peak at 17,000 in mid-December. This descent appears to be part of a bullish continuation flag pattern that has emerged after the nearly vertical uptrend witnessed from October to December. Currently, the index is making efforts to confirm a break above the crucial 20-day Simple Moving Average (SMA) and the pivotal 16,700 level. A successful breach of these levels could potentially lead to a gradual ascent towards the 16,890 resistance barrier. A further breakout beyond this point may open the path towards the resistance line from May 2023, located at 17,120.
Additionally, an even higher level of 17,260 might come into play, marked by the constraining ascending line from March 2023.
Positive Momentum Indicators
The Relative Strength Index (RSI) is displaying a positive slope, having bounced back above its 50-neutral mark, indicating improving sentiment among traders. Similarly, the stochastic oscillator is on an upward trajectory, further supporting the notion of positive momentum.
Potential Downside Risks
However, it's essential to consider potential downside risks. A retreat below the 20-day SMA could disrupt the current bullish sentiment, redirecting focus towards the 50-day SMA at 16,425. If this support level is breached, the sell-off could extend towards the lower boundary of the channel at 16,250. A failure at this point might expose the market to the psychological support level of 16,000.
In summary, despite the short-term downtrend, the German 40 index appears to be positioning itself for a bullish continuation. Confirmation of this upward momentum is anticipated with a break above the 16,700 level. Traders should closely monitor these key levels and indicators to gain insights into the index's potential future movements.
