DAX lags above major support

January 29, 2016

Germany’s DAX index has been languishing not far above its recent lows after having rebounded last week off a major support area around the 9300 level.

Like its global equity index counterparts, the DAX has suffered significant losses since the beginning of the year as a result of heightened volatility driven in part by turmoil in China’s financial markets.

The drop in the DAX for the past couple of months has clearly been severe. From its high above 11400 in early December down to its new one-year intraday low below 9300 last week, the benchmark German stock index has fallen by around 19% in less than two months.

The sharp rebound from the noted 9300 support level last week was prompted in part by dovish comments from ECB President Mario Draghi during the ECB’s closely-watched press conference. Those comments hinted at a potentially more aggressive easing stance from the central bank, as well as the possibility of lower interest rates due to a weak inflation outlook along with a host of global economic risk factors. As might have been expected, this dovish outlook led to a drop for the euro currency and a surge for equity indices, most notably the DAX.

Immediately following that rebound for the German index, however, there was little in the way of further upside follow-through, as the remainder of last week into this week has seen mostly choppy trading within a tight range.

Despite its long-term uptrend, the DAX is displaying a bearish trend bias on both a short-term and medium-term basis. These downtrends would be confirmed on any sustained breakdown below the noted major support area around 9300. The 9300 level has been repeatedly tested and respected within the past several months, so any breakdown would be highly significant from a technical perspective. In the event of this breakdown, key downside support targets remain at 8900 and 8500.

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