The German DAX index has moved back towards its key former trading range breakout point as European equity markets come under pressure due to the recent surge in COVID-19 cases across the continent.
Austria and Germany are moving towards hard lockdowns, with the German economy bracing for a slowdown amidst tighter restrictions in what is essentially the manufacturing hub of Europe.
Angela Merkel said when speaking to the association of German city leaders that the fourth wave of COVID-19 is beginning. The German chancellor described the pandemic situation as “dramatic” as COVID-19 cases rise significantly.
Merkel also added that “The fourth wave is hitting our country with full force” as Germany’s public health agency reported 52,826 new COVDI-19 infections as case rates continue to rise.
This has pressured the Ger30 back from the 16,300 level, with traders potentially on the fence about whether to buy the dip or wait for a much-larger price retracement back towards the 15,500 or 15,300 area.
Dip buyers may try their luck under the 15,900 area; however, they may need a wide stop loss if equity markets go into sell-off mode further if the pandemic causes havoc across global stock markets.
Looking at sentiment data, retail traders are on the right side of the market as the German DAX falters The ActivTrader Market sentiment tool shows that GER30 traders are currently 63 percent bearish towards the index.
Retail traders tend to lean against the prevailing trend and have poor market timing. Therefore, rising bearish sentiment probably means the bull run in the GER30 could continue.
GER30 Short-Term Technical Analysis
The four-hour time frame shows that a large head and shoulders pattern will form if the GER30 breaks under the 16,000 level, which strongly suggest that a strong decline could be coming for the German DAX.
This bearish reversal pattern suggests that a decline towards the 15,700 level could be on the horizon if we measure the pattern from neckline to head.
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GER30 Medium-Term Technical Analysis
The daily time frame shows that the German DAX has formed a large, inverted head and shoulders pattern, and the neckline is currently located around the 15,000-resistance level. The pattern has a massive target of 3,500 points.
Therefore, according to technical analysis the high for the GER30 over the medium to long-term has probably not been found, and dips towards the neckline of the pattern or close to it should still be a buying opportunity.
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