DAX
The European stock market is on a high role, and the Dax index confirms it. The German index forms a pennant formation right below horizontal resistance, and it sets the stage for a new all-time high.
While Europe is hit by lockdowns and cold weather favors the virus’ spread, some good news did surface lately. To start with, the vaccine news from Pfizer and BioNTech generated strong market activity in the European sectors. Optimism once again surfaced as investors cheered the news.
As always, the markets are trading the forward. That is, the positive COVID-19 vaccine news triggered a shift in expectations. Suddenly, the market participants see the light at the end of the tunnel and invest in traditional businesses.
After all, a vaccine may lead to a staggering 2021 growth and beyond, as people have built savings, and those will be deployed in relief. Therefore, the bullish stock market tone should not be underestimated.
The European banking sector jumped on positive vaccine news. Once the weakest sector of them all, it outperforms and has good prospects of continuing to do so.
The ECB is expected to further lower the interest rate on the TLTROs, making it even more attractive for commercial banks to get access to credit and lend it to businesses and the population. Moreover, if the stock market is a leading indicator as the business cycle theory tells us, then trading the forward makes sense.
The Dax index forms a pennant whose measured move points to a new all-time high above 15k. To trade it, bulls may want to wait for the triangular pattern in the pennant’s formation to break. Next, bulls may want to set a stop-loss order at the lowest point in the pennant’s formation and the take profit at the 15k. This way, the risk-reward ratio exceeds 1:3 or more.
