All trading involves risk. Losses can exceed deposits.

Sharp falls take wind out of DAX

Price at time of writing - 9172.

Despite seeing my short DAX recommendation 'stopped-out' recently, my last update suggested that, even if the German index were to go higher, a re-test of the resistance/support band (defined as 8942-9054) would still be required.

All trading involves risk. Losses can exceed deposits.

The very aggressive two-day fall last week has confirmed this requirement; it now remains to be seen whether this is the beginning of a deeper correction, or whether it has set the index up for further gains. We continue with the neutral recommendation for the moment.

In my view, a fall below 8942 will confirm the DAX is in the early stages of a deeper correction. If so, a pull-back from the recent high of at least 8.33% should be expected, and I have added this line to today's chart. Although the recovery on Friday appeared impressive at a glance, we should disregard the move completely when determining whether a change of trend has occurred. After all, the reasons provided by commentators for the recent equity rally are precisely the same reasons behind for the sharp falls earlier last week. The US taper is approaching, and ten-year bond yields are rising globally.

The sharp falls witnessed last week have taken the steam out of the DAX, but, nonetheless, it remains a high-risk time to jump back in. Both major US share indices – the Dow Jones and S&P 500 – have aligned in triggering 'short sell' recommendations, and softer US markets will always provide stiff headwinds for the rest of the world. 

Recommendation: Neutral. Sell short on a break below 8940. The target then becomes 8640.

Germany 30 chart

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

Find articles by analysts