DAX index analysis: German stocks downtrend is still intact

October 04, 2023 05:14 AM PDT | By Invezz

DAX index analysis: German stocks downtrend is still intact — Image source: Invezz

Economic concerns remain

The German DAX index has come under pressure in the past few months as concerns about the global economy continues. In Europe, there are risks that the bloc will sink into a recession. Data published by S&P Global showed that the services PMIs dropped to the contraction zone.

European’s services PMI dropped to 48.7 in September while the composite PMI fell to 47.2. A PMI figure of less than 50 is a sign that the economy is contracting. In Germany, the services PMI fell to 46.4 while in France, it dropped to 44.1.

Another report revealed that Europe’s retail sales dropped sharply in August. It dropped by 1.2% in August, leading to a year-on-year increase of 2.1%. Economists were expecting the sales to drop by 0.3% and 1.2%, respectively.

Despite the weakness, Christine Lagarde maintained that the European Central Bank (ECB) will maintain higher rates for longer.

The same is happening in China, where the real estate industry is on the verge of collapsing. Companies like Country Garden and Evergrande are hanging on a thread. This is important since the real estate sector is the biggest part of the Chinese economy.

China is also a crucial part of many companies in the DAX index. Firms like BMW, Volkswagen, and Mercedes see China as their biggest markets.

Meanwhile, the US bond market is imploding as yields surge to the highest level in more than two decades. The 10-year bond yield jumped to a high of 4.70% while the 30-year has surged to more than 5%.

Taken together, DAX index companies are dealing with slowing economies in their key markets, tighter liquidity, and higher interest rates.

DAX index forecast

DAX chart by TradingView

The DAX 40 index formed a rising wedge pattern, which I covered here. In price action analysis, this pattern is one of the most bearish in the market. It has now moved below the lower sides of the wedge pattern. It has also collapsed below the important support at €15,503, the lowest levels in July and August 22nd.

It has moved below the 200-day and 50-day moving averages while the MACD has moved below the neutral point. Therefore, the index will continue falling in the coming days as sellers target the key support at €14,476 (March 20th low). This price is ~4.67% below the current level.

The post DAX index analysis: German stocks downtrend is still intact appeared first on Invezz.

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