Beware of the bearish divergence in DAX30, a short-term correction is likely

Junij 08, 2020 12:00

Source: Economic Events June 8, 2020 - Admiral Markets' Forex Calendar

The DAX went parabolic over the last week of trading by gaining further bullish momentum after the German index recaptured the SMA(200) around 12,000/050 points.

At first glance, it seemed quite optimistic to get to see a walk-through on the upside with a push as high as the region around the January lows around 12,850/900 points.

This came, despite social unrest in the US, and a very dark fundamental picture for the US economy as well as the European economy. The combination of an EU commission proposal of a 750 Billion-Euro fiscal stimulus package with 500 billion Euro in grants and 250 billion in loans for European Union regions as a first step toward a transfer union, the German governing coalition agreeing on an additional €130bn economic stimulus package which will see e.g. value-added tax rate cut from 19% to 16% and an ECB which boosted the size of its PEPP program on Thursday to 1.35 trillion Euros with being set to run through at least the end of June 2021, the DAX30 took off on the upside.

While the stock market has obviously completely decoupled from the real economy, given the German index' with valuation at a Price-Earnings-Ratio of around 20, its highest level since the New Economy at 2000, the bullish performance is also a warning sign for 'bears'.

Whatever driver the DAX30 currently finds, it is a clear bullish one, even though the technical mode on the upside seems very extended.

In fact, the first clear signs of a bearish divergence in the RSI(14) on H1 point to at least a short-term correction, a push back below 12,000 points activate a first target around 11,800/850 points and becomes likely with a break below 12,300/350 points.

Above 12,300/350 points the focus and target on the upside remains on the January lows around 12,850/900 points.

Source: Admiral Markets MT5 with MT5-SE Add-on DAX30 CFD Hourly chart (between May 19, 2020, to June 5, 2020). Accessed: June 5, 2020, at 10:00pm GMT

Source: Admiral Markets MT5 with MT5-SE Add-on DAX30 CFD Daily chart (between February 20, 2019, to June 5, 2020). Accessed: June 5, 2020, at 10:00pm GMT - Please note: Past performance is not a reliable indicator of future results, or future performance.

In 2015, the value of the DAX30 CFD increased by 9.56%, in 2016, it increased by 6.87%, in 2017, it increased by 12.51%, in 2018, it fell by 18.26%, in 2019, it increased by 26.44% meaning that after five years, it was up by 34.2%.

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