DAX surges from its lows, but runs into resistance

The DAX has enjoyed an impressive bounce recently, but can it keep the upwards momentum going?

DAX bounces from March lows

The DAX has bounced strongly from the lows of March, but now we must closely watch the 10,200 area. This was the low from late 2018, which formed the support level for the index’s bounce into 2019. Having moved back to this level, the price has now encountered resistance. A turn lower from here raises the prospect of a move back towards 8400.

Alternatively, a weekly close back above 10,200 brings 11,260 into view, the support level from March and August 2019, and would mean the index is still down 18% from its 2020 highs, but 40% up from its lows for the year.

Short-term breadth has soared, with the percentage of stocks above the 20-day simple moving average (SMA) hitting a peak of almost 90%. However, it has now reversed and fallen back below the one standard deviation of 77.3%. This kind of movement in breadth has marked at least a short-term high. In any case, after a surge of around 2000 points, some near-term weakness would not be surprising.

Short-term upside for the DAX?

All 30 constituents of the index are below their 200-day SMAs, something that happens only rarely. There could be some short-term upside from here, even if the bounce eventually gives way to more downside.

Unsurprisingly, we saw a huge spike in DAX constituents at 100-day lows in March. Again, near-term risk-reward tends to favour the bulls, at least in the short term. Whether this continues to provide a foundation for a longer-term rally remains to be seen.

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