The DAX has recently rallied after breaking down for most of the year. The market is one that has been choppy during the move though, so nothing is going to be easy for the bulls. However, we see a few things on the chart that has us thinking that we will eventually rally and go much higher, as we are essentially looking at a market that is like a beach ball that is being held under water: Once we break the surface (resistance), we should see a strong move higher.
The most obvious area is the 10,000 level. The area is a large, round, psychological number, and this of course will attract a lot of attention by itself. You can see on the chart we have marked this region, and with this area being so obvious, we feel this market could go all the way to the 10,800 level. This is because of the gap at the start of 2016, and this is a basic tenant of technical analysis – ‘gap get filled.’
We not only have the market forming a rally, but we also formed a hammer on Monday, with is of course positive and bullish itself. The 50 day exponential moving average is just below, and as we have broken above it, the market should have momentum to the upside. The two factors should be enough to attract some buying by itself, and with this Adrian and I are looking for momentum to build up. However, we do have the 50% Fibonacci retrace level just above, and that could be a bit of a resistance barrier. However, there is enough positive factors to outweigh the 50% level and the psychological significance of the 10,000 level.
Keep in mind that the European Central Bank is likely to continue a soft monetary policy, essentially forcing money out of bonds and into riskier assets, such as stocks. The German index is where a lot of money ends up as the German companies tend to be the most ‘blue chip’ of European companies in general. The exporters should do well with a lower Euro overall, although we have seen a bit of bullish strength in the currency recently. With a lot of central bank intervention in the currency markets, the DAX will be considered a safe haven for stock market traders.