DAX Market Analysis, July 2020

DAX Market Analysis, July 2020

10 July 2020Reading time: 3 minutes

In June we saw a change in DAX dynamics – during the first week of June the index continued the upward trend that started in mid-May but then the bullish momentum weakened when the index hit the monthly R2 pivot point (12900) and we saw a pullback (as we presented beginning of June) and DAX consolidated within a 800-point range around the yearly pivot point (ca 12330). This was yet another good example of using both monthly and daily pivot points in trading as they often are clear levels of resistance and support.

The continuation of the strong bullish momentum was receiving increasingly wide questioning on the market from mid-June onwards, especially as global COVID-19 numbers continued to rise, several countries had to continue lockdown restrictions and speculations on a possible 2nd COVID-19 wave and its impacts became more prominent. In June we also saw additional support from central banks: US FED announced the start of individual corporate bonds purchases. However, this did not have any significant impact on the market anymore. Valuations appeared to be so high already that additional central bank action did not have real additional positive impact on the market.

Technically DAX has turned bullish on the monthly charts (below). EMA6 is still below EMA12 level but the June closing price was clearly above both levels. So we mainly look for entry points of long trades. Consolidation and possible new COVID-19 concerns may also open opportunities for short trades for more experienced traders. One interesting level to watch is 13000 points, the level at which DAX had its previous high in June - it is a psychologically meaningful resistance level and also the monthly R1 pivot is at that level which DAX may have a hard time to exceed, if the level becomes tested. Additionally, the upper end of the current range, c. 12600 points, can be a starting point for legs downwards.

Long term support levels: 11200, 12000
Long term resistance levels: 13000, 13500

Currently it is quite possible that DAX tests both ends of the current range, i.e. c. 12900 and 11800, before we see a clear breakout in either direction.

A potentially good option for long market views would be TLNG DAX V652 - knock-out needs to be below expected possible pullback level.

For short trades, a possible knock-out warrant could be TSRT DAX V478 with a tight stop and a small position size if DAX tests 13000 points and turns downwards.

Below is a weekly chart with monthly pivot levels displayed. DAX is clearly bullish here with the monthly R1 pivot (12990) being a likely resistance level. If we see a downward correction, the monthly pivot at 12300 is a likely level to be tested and after that the current range low end / EMA12 level at 11900-12000 points. The next likely level is the monthly S1 pivot 11640 that was also tested in June. Similar to last month, the US volatility index VIX is an important market sentiment to follow, we think.

Medium term resistance levels: 12840, 13500
Medium term support levels: 12000, 11640

Investor sentiment in USA has not really changed during the last month. There has mostly been a decrease on the bullish side. Market volatility is supporting the bullish market view.

Historically, July has been a slightly positive month for DAX.

Above share of stocks in DAX index, split between those above and below their respective DMA20 averages. The daily pattern is technically unclear, but seems to support a bullish view.

McClellan oscillator is in trending upwards – also this indicator indicates that a bullish trend may continue with market typical pullbacks.

Above: Summary of technical indicators for shares in DAX index: summary is a strong buy. Indicators are so strong on the buy side that this can work also as a contra indicator: pullback is also possible.

Above: Historical weekly and daily changes for DAX index.

Above: Volatility for DAX index continued to decline in June - a bullish indication.

Summary of world’s main futures: also here it indicates a very strong buy. This often has meant a market pullback before new legs up.

Legal notice

This information is in the sole responsibility of the guest author and does not necessarily represent the opinion of Bank Vontobel Europe AG or any other company of the Vontobel Group. The further development of the index or a company as well as its share price depends on a large number of company-, group- and sector-specific as well as economic factors. When forming his investment decision, each investor must take into account the risk of price losses. Please note that investing in these products will not generate ongoing income.

The products are not capitalprotected, in the worst case a total loss of the invested capital is possible. In the event of insolvency of the issuer and the guarantor, the investor bears the risk of a total loss of his investment. In any case, investors should note that past performance and / or analysts' opinions are no adequate indicator of future performance. The performance of the underlyings depends on a variety of economic, entrepreneurial and political factors that should be taken into account in the formation of a market expectation.

22/10/2020 05:32:01

 

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