- Summary:
- The DAX index is on edge as the head and shoulders pattern crosses the neckline. This is an indicator that the price will continue falling.
The DAX index is down for the second consecutive day as traders continue worrying about the rising number of coronavirus cases in Europe. The index has also breached a key support, which may be a signal that the price will fall further. It is trading at €12,145, which is the lowest it has been since June 29.
Rising Covid-19 cases is a worry
The biggest concern among investors is that the number of Covid-19 cases in Germany and other European countries is rising. The latest data from Germany shows that the cases rose by more than 8,600 yesterday. This brings the total number of cases to more than 450k while deaths have increased to more than 10,000.
In a statement today, Angela Merkel warned that Germany faces “difficult months ahead.” She said this after her senior advisor said that the country could be forced to go back to lockdown if daily cases jump to more than 20,000.
The same trend is continuing in other European countries like France, Belgium, and France. As I wrote yesterday, the rising numbers is bad for companies in the DAX index because of demand and supply issues. If countries close down some industries, other industries will have to pay more for inputs. Also, there will be less demand as more people stay at home.
Strong earnings support the DAX
Today’s decline in the DAX index are less than yesterday. This is partly because of the relatively strong corporate earnings. Earlier today, European companies like BP and HSBC reported better results, in a sign of confidence for the region. Indeed, because of the strong earnings by HSBC, Deutsche Bank shares have jumped by 0.72%.
Later today, we will receive results from companies like Microsoft, Pfizer, and Merck. Merck is a DAX constituent.
The only DAX constituents in the green today are SAP, Delivery Hero, Deutsche Bank, and Deutsche Post, Merck, and Fresenius. SAP share price has jumped by 2.60%, a day after it tumbled following weak earnings.
Other companies are in the red, with the biggest laggards being MTU Aero, BMW, Volkswagen, and Daimler.
DAX index technical outlook
The daily chart below shows several things. First, we see that the index is in its second straight day in the red. Second, it has formed a head and shoulders pattern. Notably, today, it has moved below the neckline of this pattern. In technical analysis, this is usually a sign that bears have prevailed. Also, the index has moved below the 25-day and 15-day EMAs.
Therefore, I suspect that the DAX index will continue falling as bears aim for the 61.8% Fibonacci retracement level at €11,575. On the other hand, a move above 12,800 will invalidate this trend.
DAX Index technical chart
