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Chart Of The Day: DAX Rise Slowing, Mirroring Germany's Economic Growth

By Investing.com (Pinchas Cohen/Investing.com)Stock MarketsJan 05, 2022 22:34
ph.investing.com/analysis/chart-of-the-day-dax-rise-slowing-mirroring-germanys-economic-growth-100853
Chart Of The Day: DAX Rise Slowing, Mirroring Germany's Economic Growth
By Investing.com (Pinchas Cohen/Investing.com)   |  Jan 05, 2022 22:34
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Germany's economy, once viewed as Europe's economic engine, has recently been facing an array of challenges. Uncertainties placing a drag on growth include the rising cost of energy, ongoing supply chain issues and the continued spread of COVID's Omicron variant.

Still, Germany's unemployment rate fell in December, albeit incrementally to 5.2% from 5.3% in the previous month. Nevertheless, that's an impressive feat considering amped up coronavirus restrictions amid a new pandemic wave.

Moreover, retail sales figures, also released yesterday, provided surprisingly positive data, hitting a record annual high. However, there could be an additional challenge, specific to Germany, already looming.

What's made the country's economy so successful until now has been the local focus on industrial engineering and manufacturing. But might it be time for Germany to join the tech revolution, something China has been focusing on?

For example, Tesla (NASDAQ:TSLA) has been dominating the auto industry, overtaking many of Germany's once vaunted carmakers. As well, the pandemic has toppled Germany from its position as having the world's largest current account surplus.

Could it be then that recent economic releases displaying relative strength might end up representing a peak, ahead of a decline, when the risks along with health curbs finally catch up with the data?

It's hard to say if or when all these changes will become apparent via market activity. Yet Germany's main stock index, the DAX, which outperformed the STOXX 600 in 2020, lagged the pan-European benchmark in 2021. And though analysts expect the 30-component, blue chip DAX to continue growing in 2022, the consensus is for even slower growth this coming year.

The index's technicals are signaling a possible slowdown as well.

DAX Daily
DAX Daily

The DAX is finding resistance by its November record high.

While the price has been making new highs, it's also been churning, forming a rising wedge. The presumed dynamic of this pattern is that bulls are getting tired of pushing higher while still not being able to reproduce the same results seen before the formation of the pattern.

Notice too that both the MACD and RSI have been providing negative divergences to the rise in price, possibly signaling a reversal.

Trade Strategies

Conservative traders would wait for a breakout to determine the next trend. They'd wait for a minimum of 3 days and a 3% move to filter out any fake shifts, then wait for a return-move to retest the pattern's integrity.

Moderate traders should do the same but would be happy with a two-day, 2% filter.

Aggressive traders could take advantage of a rare risk-reward ratio as bulls bang their heads against the November resistance.

Trade Sample

  • Entry: 16,300
  • Stop-Loss, 16,400
  • Risk: 100 points
  • Target: 16,000
  • Reward: 300 points
  • Risk-Reward Ratio: 1:3
Chart Of The Day: DAX Rise Slowing, Mirroring Germany's Economic Growth
 

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Chart Of The Day: DAX Rise Slowing, Mirroring Germany's Economic Growth

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