Caution Ahead As DAX Index Approaches Key Resistance Level

Summary:
• DAX index is approaching an important resistance level as Coronavirus risks continue to rise. The index could have a pullback after hitting a 10,000 level

The DAX index CFDs rose by about 50 basis points as optimism continued in the markets. The rise came a day after Wall Street ended in the green, with the main indices rising by more than 3%. Other European markets are rising, with the Stoxx 40 index rising by more than 1% while the CAC is up by more than 1.30%.

There are two main catalysts for today’s gains. First, the Coronavirus outbreak in Europe is approaching its peak level according to the World Health Organization. This came after Italy reported its smallest number of cases in about 2 weeks.

Second, data from China provided some relief to investors. According to China Logistics, manufacturing activity accelerated in March. The manufacturing PMI rose from 35.7 in February to 52 in March. A reading above 52.0 is usually a sign that the sector is strengthening. The non-manufacturing sector rose from 29.6 to 52.3, which is another sign that the country has rebounded.

Meanwhile, European countries are putting measures to support their companies and economies. Germany has lined up more than $600 billion to support the economy. Some of these funds will go to companies that have been hit hard due to Coronavirus. Others will go directly to people who are facing a hard time. According to Bloomberg, the government will pay salaries to some workers.

Still, there are questions about whether Germany can weather the storm in the long term since its main industries are seeing rapid changes. For example, the automobile sector is being disrupted by flashy electric vehicles from the likes of Tesla and NIO. For example, Daimler and Volkswagen are reducing hours to more than 250k employees while Deutsche Bank will idle some of its staff.

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DAX Index Technical Analysis

Looking at the same hourly chart I used yesterday, we see that the DAX index has been holding on to yesterday’s gains. Also, we see that the 14-day and 28-day exponential moving averages have made an important crossover. I expect the bull run to continue until the index tests the €10,000 resistance level, where it will form a triple top pattern. Moves above this resistance level will likely see the index continue its upward trend.

On the flipside, a triple top pattern is usually send a signals that a price could move lower, which could happen here too.