Many investors are still trying to quantify the reasons for the superior values of many equity indices globally. They are calculating corporate outlooks, current revenues, debt ratios and they are left scratching their heads regarding current corporate valuations. The major stock indices are overvalued in the minds of many analysts and they cannot be faulted for these opinions. However, the DAX Index like its major cousins overseas in the US, continues to produce monthly results since late March that shows a progressive trend upwards.
On the heels of a European Union announcement around the 20th of July that an economic package would be created to help EU nations battle the troubling economic prospects from the impact of coronavirus, the DAX Index soared to July highs. A level of approximately 13,300.00 was touched, but a quick selloff soon followed. Perhaps it was a case of too much too soon, or profit taking. However, the reversal downwards when looked at with mid-term charts still shows a strong bullish trend exists.
Around the 8th of June a high of nearly 12,900.00 was hit and the late selloff in July is testing what has become this important technical resistance juncture again. If this resistance level can hold or can at least provide a value range to consolidate, then in all likelihood the DAX Index will again start to test higher ground. If a speculator bought a DAX Index in the beginning of July and held for a length of time they likely made a nice profit. The trend remains strong for the major German equity index and this is likely not going to change. No matter how many calculations and shakes of their heads in disdain regarding a lack of correlations for current revenues and year end outlooks are made, major indices are trending higher in many places including the Dax Index. Damn the torpedoes. Reasons for this are complex, but speculators should try to understand financial institutions have few other places where they can put their money in order to pursue profits.
Financial houses need the seal of approval from the pension funds and other clients they represent. In other words, financial institutions are putting their money into equities because everyone else is doing it. If investment firms do not put their money into indices and the indices continue to go up, the financial institutions who didn’t participate in the move upwards will be called fools and jobs will be in peril. This may sound like an oversimplification, but human instinct is often based on the sentiment of the crowd.
Yes, the DAX Index could see renewed selling, it could test support levels such as the 12,680.00 juncture below, but a speculator would have to have a sizeable account balance and emotional fortitude to sell and look for this type of target. Risk reward scenarios should be the context traders are looking at, where is the current momentum, what is the mid-term trend? Yes, it is always wise to be cautious and use risk management, but a decision to follow the trend upwards should not be disregarded. Going against the trend should raise concerns and suspicions.
If a speculator can buy into the DAX Index between values of 12,800.00 and 12,900.00 they might want to participate in this market. The DAX Index will certainly have days it sells off, but based on current risk appetite and the prevailing attitude there remain few other places for financial institutions to put their money.
Buying into the major German stock index seems like a solid choice. If the DAX Index begins to sustain itself above the 13,000.00 level and test resistance levels above, its trend could prove worthwhile while remaining with the crowd.
DAX Index Outlook for August:
Speculative price range for DAX Index 12,550.00 to is 13,600.00
Support levels at 12,680.00 look adequately strong; if it is broken downwards 12,550.00 could be targeted if selling momentum builds.
Resistance at 13,200.00 and 13,350.00 are important risk appetite barometers, if broken higher a test of all-time highs could develop.
