With a holiday in the United States, the focus today remains on European markets, as the stocks have witnessed a recent increase in Trump’s push towards a quick solution to the war in Ukraine. However, are the markets rushing to adopt this optimism?
This analysis of the DAX index shows that the German index has now reached excessive purchasing saturation levels, which requires caution.
Written by: Fawad Razzaq Zadeh, market analyst
The general feeling in Europe remained positive as the main indicators continued to achieve its recent gains, as the DAX index recorded a new standard to become in the technical saturation area technically.
The gains were led by the shares of defense companies, driven by the possibility of increasing military spending in the European Union, which may force governments to increase borrowing in the coming years. As a result, bond prices fell, while returns on German, French and Italian bonds increased significantly. With a holiday in the United States, today the focus has been entirely on European markets, as stocks rose strongly thanks to Trump’s pushing for a quick solution to the war in Ukraine. However, are the markets over their optimism? This analysis of the DAX index shows that the German index has now reached excessive purchasing saturation levels, which requires caution.
Technical analysis
Currently, the DAX index is still impressive. The German index has reached its lowest level in October 2022, and since then, only two main corrections have witnessed during the following years, both of which did not exceed 10% before buyers intervene when declining to push the market to new record levels.
All other declines were largely limited, ranging from 5-7%. As a result, the DAX index often kept its stability above the short -term moving average for 21 weeks. In general, the price movement was very strong.
However, since the index now has reached long -term purchasing levels, there is a risk of a long -awaited correction in the coming days or weeks.
The RSI Index (RSI) shows a severe purchasing saturation level at 80+ (81.3) on the weekly timetable. The last time the index reached this level of purchasing saturation was in March last year, when the relative power index reached 81.0 before it declined later. At that time, the index continued to record a new summit in May, but then decreased by 10% until the market reached the bottom in August.
If this historical scenario is repeated and witnessed a correction, a 10% decline may return the index to the levels at which it was trading at the end of December, or about 20500, as the SIA moving average for 21 weeks will play an important role.
Given that the market has respected this moving average over and over again, we may witness the resumption of the upward trend at this level, unless a major declining stimulus appears that leads to a more severe correction. But in the basic scenario, we expect approximately 10% correction – if that happens.
The monthly RSI is now approaching the level of 80 – a rare thing.
On the monthly graph, the DAX index now achieves its fourth monthly gains in a row, and has risen in the past 7 months.
It is not surprising that the RSI indicator (RSI) on this time frame has also increased to extremist levels – where it is now approaching 80 (79.0).
The last time the index reached this level of purchasing saturation was in March 2015 – that is, nearly a decade! At that time, the DAX index reached its climax in early April, before it decreased by about 30% in the following months, until it reached the bottom in February 2016.
DAX Index Analysis: The main levels that must be monitored on the daily chart
On the daily time frame, the DAX index was testing the upper limit of the upholstery channel, recording a new historical summit between 22,720 and 22,800.
The RSI (RSI) index reached 83, which is just less than the level of January, which ranged between 84-85. In other words, the relative strength index was in a negative spacing on this time frame.
In other words, the relative strength index achieved a low top at the levels of purchasing saturation above 70.00, while the DAX index recorded new historical peaks. This spacing indicates that strong momentum has gradually losing its strength.
A price correction is needed to restore the relative power index to neutral levels or sales areas again.
In order for sellers to break this upward trend, some major support levels must be hacked.
- Short -term support is currently at 22,500.
- There is no strong support after that, even the upper direction line of the bullish canal at approximately 21,950.
- Like this level, the highest level in January will be at 21,803 important axial points, as the Si Mobile Mediterranean also meets 21 days.
It will not become interesting unless we see a clear fracture of these levels mentioned above. Despite all economic crises and challenges, the markets have shown a remarkable force last year, so the sellers must wait for a clear reflection signal before taking any declining centers.
2025-02-17 18:05:02