DAX Index Bounces Back – Is This a Dead Cat Bounce?

Summary:

The DAX index has bounced back today in what seems like a dead cat bounce. This means that the price is likely to resume the downward trend

German stocks are struggling today. The DAX index, which tracks some of the biggest firms in the country, is up by just 0.40% in a cautious trading session. The index fell by more than 4% yesterday. Elsewhere in Europe, the FTSE 100, CAC 40, and Stoxx 50 are all up by more than 0.50%.

European stocks are outperforming their American and Asian counterparts. Dow Jones, S&P 500, and Nasdaq futures are all in the red. The same is true for most indices in Asia like the Shanghai composite and the Hang Seng.

The DAX index is falling even as problems emerge in Europe as the number of COVID cases start to rise in some of the key countries like the United Kingdom. While the daily increases in Germany has remained low, there is a possibility that we could see a sudden increase. Also, an increase in other countries could impact the performance of most companies in the DAX index.

Perhaps, the DAX is gaining because of the falling euro. The euro is down by more than 0.20% against the US dollar. This is happening a day after the currency fell by more than 0.50% against the greenback. A weaker euro is usually a positive thing for the DAX because it usually makes European exports cheaper.

Infineon, Fresenius, Deutsche Post, and SAP are the best-performing stocks in the DAX today. They are all up by more than 1.50%. On the other hand, Deutsche Bank, Allianz, and Covestro are the worst-performers. Deutsche shares are in a freefall after the company, together with other banks, were accused of funding illegal activities.

DAX index technical outlook

The DAX index is trading at €12,593, which is significantly below this month’s high of €13,452. The index has managed to move below the ascending trendline that is shown in blue. The 20-day and 10-day exponential moving averages have also made a bearish crossover.

Therefore, it seems like the early bounce is a dead cat bounce, which means that the index could resume the downward trend during the session. If this happens, it is likely to move below yesterday’s low of €12,500. On the flip side, a move above €13,000 will invalidate this trend. This price is at the intersection of the ascending trendline and the 20-day EMA.