It is clear that a continuing shift in asset allocation is taking place across much of Europe, resulting in a revitalised appetite for equity investment. We should also be mindful, however, that a return of the retail investor also rings alarm bells.
This resilience has resulted in the outlook for the DAX improving markedly of late. Although the January pull-back measured a reasonably aggressive 7% (but fell shy of my anticipated 8.33% pull-back), the subsequent 6.25% rally has allowed me to consider raising the target on the index to a band defined as 10,207-10,250, with the key level now standing at 9637. Despite the DAX having closed above this minor resistance yesterday, it has not yet done so definitively. A retest, followed by some upside momentum, would provide me with the ideal trigger.
If we can hold above the 9637 level, a minimum target of 10,207 can be introduced. This would double the recent 6.25% advance and align the index with two other longer-term percentage lines of greater significance.
Recommendation: neutral. Buy the index on any dip to 9637.The target then becomes the band 10,207-10,250.