Chart of the Week - DAX: Why There's Still Room in this Rally

Market Analysis /
Milan Cutkovic / 23 May 2018

The DAX was lagging behind the major US indices in April, leaving investors frustrated. However, in the recent weeks, the German stock index managed to catch up and even outperform the S&P 500 and its peers.

What has been driving the DAX?

* The decline of the Euro - a weaker currency makes German products cheaper abroad, which is a major factor for the country, as its export industry is huge.

* Trade talks - while the trade conflict between the USA and China is far from solved, recent developments have been more positive and it seems at least that the situation will not escalate into a trade war.

* No fear of rising rates - while US investors have concerns about the Federal Reserve hiking rates faster than anticipated, EU investors do not have to fear that the ECB will increase rates anytime soon.

What are the Charts saying?

* The DAX had a clear break above the major psychological resistance level at 13.000 points

* Today, the index cleared another hurdle at 13.160 points - the 76.8 % Fibo of the February decline

* The RSI shows slightly overbought conditions, but still far away from extreme levels

* Techs have turned bullish, and in the short-term, a retest of the January high at 13.590 points seems likely

* Bulls have reason to be optimistic as long as the index holds above 13.000 support


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