Beware of the bearish divergence in DAX30, a short-term correction is likely

By Admiral Markets

Source: Economic Events June 8, 2020 – Admiral Markets’ Forex Calendar

The DAX went parabolic over the last week of trading by gaining further bullish momentum after the German index recaptured the SMA(200) around 12,000/050 points.

At first glance, it seemed quite optimistic to get to see a walk-through on the upside with a push as high as the region around the January lows around 12,850/900 points.

This came, despite social unrest in the US, and a very dark fundamental picture for the US economy as well as the European economy. The combination of an EU commission proposal of a 750 Billion-Euro fiscal stimulus package with 500 billion Euro in grants and 250 billion in loans for European Union regions as a first step toward a transfer union, the German governing coalition agreeing on an additional €130bn economic stimulus package which will see e.g. value-added tax rate cut from 19% to 16% and an ECB which boosted the size of its PEPP program on Thursday to 1.35 trillion Euros with being set to run through at least the end of June 2021, the DAX30 took off on the upside.

While the stock market has obviously completely decoupled from the real economy, given the German index’ with valuation at a Price-Earnings-Ratio of around 20, its highest level since the New Economy at 2000, the bullish performance is also a warning sign for ‘bears’.

Whatever driver the DAX30 currently finds, it is a clear bullish one, even though the technical mode on the upside seems very extended.

In fact, the first clear signs of a bearish divergence in the RSI(14) on H1 point to at least a short-term correction, a push back below 12,000 points activate a first target around 11,800/850 points and becomes likely with a break below 12,300/350 points.

Above 12,300/350 points the focus and target on the upside remains on the January lows around 12,850/900 points.

Source: Admiral Markets MT5 with MT5-SE Add-on DAX30 CFD Hourly chart (between May 19, 2020, to June 5, 2020). Accessed: June 5, 2020, at 10:00pm GMT

Source: Admiral Markets MT5 with MT5-SE Add-on DAX30 CFD Daily chart (between February 20, 2019, to June 5, 2020). Accessed: June 5, 2020, at 10:00pm GMT – Please note: Past performance is not a reliable indicator of future results, or future performance.

In 2015, the value of the DAX30 CFD increased by 9.56%, in 2016, it increased by 6.87%, in 2017, it increased by 12.51%, in 2018, it fell by 18.26%, in 2019, it increased by 26.44% meaning that after five years, it was up by 34.2%.

Discover the world’s #1 multi-asset platform

Admiral Markets offers professional traders the ability to trade with a custom, upgraded version of MetaTrader 5, allowing you to experience trading at a significantly higher, more rewarding level. Experience benefits such as the addition of the Market Heat Map, so you can compare various currency pairs to see which ones might be lucrative investments, access real-time trading data, and so much more. Click the banner below to start your FREE download of MT5 Supreme Edition!

Disclaimer: The given data provides additional information regarding all analysis, estimates, prognosis, forecasts or other similar assessments or information (hereinafter “Analysis”) published on the website of Admiral Markets. Before making any investment decisions please pay close attention to the following:

1. This is a marketing communication. The analysis is published for informative purposes only and are in no way to be construed as investment advice or recommendation. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead of the dissemination of investment research.
2. Any investment decision is made by each client alone whereas Admiral Markets shall not be responsible for any loss or damage arising from any such decision, whether or not based on the Analysis.
3. Each of the Analysis is prepared by an independent analyst (Jens Klatt, Professional Trader and Analyst, hereinafter “Author”) based on the Author’s personal estimations.
4. To ensure that the interests of the clients would be protected and objectivity of the Analysis would not be damaged Admiral Markets has established relevant internal procedures for prevention and management of conflicts of interest.
5. Whilst every reasonable effort is taken to ensure that all sources of the Analysis are reliable and that all information is presented, as much as possible, in an understandable, timely, precise and complete manner, Admiral Markets does not guarantee the accuracy or completeness of any information contained within the Analysis. The presented figures refer that refer to any past performance is not a reliable indicator of future results.
6. The contents of the Analysis should not be construed as an express or implied promise, guarantee or implication by Admiral Markets that the client shall profit from the strategies therein or that losses in connection therewith may or shall be limited.
7. Any kind of previous or modeled performance of financial instruments indicated within the Publication should not be construed as an express or implied promise, guarantee or implication by Admiral Markets for any future performance. The value of the financial instrument may both increase and decrease and the preservation of the asset value is not guaranteed.
8. The projections included in the Analysis may be subject to additional fees, taxes or other charges, depending on the subject of the Publication. The price list applicable to the services provided by Admiral Markets is publicly available from the website of Admiral Markets.

Leveraged products (including contracts for difference) are speculative in nature and may result in losses or profit. Before you start trading, you should make sure that you understand all the risks

By Admiral Markets