DAX 40 price forecast: How to trade the German index in the current market environment

[ArvinIG]

With the war, threat of recession and hawkish European Central Bank, we look at how to trade Germany’s benchmark index, the DAX 40, in current conditions.

Source: Bloomberg

 

Indices DAX Price Moving average Trend following Spinal muscular atrophy

 

DAX 40: what the moving averages are suggesting

Source: ProRealTime

 

The price of the DAX 40 continues to trade below the 200 day simple moving average (SMA) - the blue line - suggesting that the longer term trend bias remains down for the time being.

The price has, however, been whipsawing back and forth through the 20- and 50-day SMAs (red and green lines on the chart, respectively).

While the price trades below these moving averages (a negative signal), the 20-MA trades above the 50-MA (a positive signal).

These are conflicting signals suggestive that the short- to medium-term trend for the index is sideways at present, rather than truly directional.

DAX 40 – price action

Source: ProRealTime

 

The DAX 40 has broken below support at 14300. The downside break now sees 13850 and 13690 respectively as lower support target considerations.

In line with our short- to medium-term trend assumptions from the moving averages, we think that the price is now in a broad consolidation between levels 13300 (support) and 14820 (resistance).

For a reversal of the longer term downtrend, we need to see the price breaking above the 14820 resistance level (confirming this move with a close above).

A break below 13300 would suggest that the longer term downtrend is continuing, although the major low at 12360 would need to be broken for a technical affirmation of this.

How to trade the DAX 40

Our preference for the DAX has moved towards range trading over the short- to medium-term.

We are looking to enter long or short positions on reversals off levels within the broader 13300 to 14820 range, exiting trades to limits on levels within this range as well.

We are not looking at trend following and riding out winners whilst this market is within a broad consolidation (at least while trading on a daily timeframe chart).

Only if we see a break of major support at 13300 or major resistance at 14820 would we reconsider looking at trend following systems on the daily timeframe once again

Shaun Murison | Senior Market Analyst, Johannesburg
10 June 2022