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DAX40 index price forecast: breakout into overbought territory


MongiIG

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The DAX40 (Germany 40) Index has now confirmed an upside breakout in line with the longer term trend, although the move sees the price trading in overbought territory.

GettyImages-building_2_155034793.jpgSource: Bloomberg
 
 Shaun Murison | Senior Market Analyst, Johannesburg | Publication date: Friday 14 April 2023 

DAX40 – Indicator analysis

14aprdaxmas.pngSource: IG

Marked with the black arrow we see that the 20-day simple moving average (20MA) (red line) has now crossed above the 50-day simple moving average (50MA) (green line). This is a suggestion that the short to medium trend is once again aligned with the longer-term uptrend. The long-term trend is gauged by the price trading firmly above the 200-day simple moving average (200MA) (blue line).

The 20MA trading above the 50MA which in turn trades above the 200MA is what is considered proper order in technical analysis confirming that the short-, medium- and long-term trends are aligned.

The stochastic does however trade in overbought territory. This is a suggestion that perhaps the DAX40’s short term gains have become overheated, although this signal is considered to carry less precedence than the underlying trend bias. Also, counter trend indications from oscillators such as the stochastic are considered less reliable than signals aligned with the trend.

DAX40 – Price analysis

 

14aprdaxprice.pngSource: IG

The DAX40 has now broken through resistance at the 15715 level. The upside breakout sees little in the way of resistance until the historical high at 16300. This in turn becomes the upside target favoured from the breakout. Traders who find long entry into the initial breakout might consider using a close below either a one or two day low (depending on threshold for risk), as a stop loss indication for the trade.

While the initial breakout is valid, our preferred approach to finding long entry is to look for the first pullback from each new high. This approach does find further favour from the fact that the price trades in overbought territory currently. Should a pullback occur we would look for the price to find support at either the 15485 level or at the black trend line on our chart before entering new long positions on the index.

DAX40 – IG client sentiment

 

14aprdaxsentiment.pngSource: IG

As of the morning of the 14th of April 2023, the majority (81%) of IG clients with open positions on the DAX40 Index expect the price to fall in the near term, while 19% of IG clients with open positions on the index expect the price to rise in the short term.

In summary

  • The short medium- and long-term trends (as gauged by the moving averages) are considered up
  • The DAX40 is however also looking overbought at current levels
  • The trend bias is considered to take precedence over the overbought signal
  • The DAX40 break of resistance suggests 16300 as a possible target
  • The majority of IG clients with open positions expect the price to fall in the near term

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