DAX Fundamental Analysis – week of October 24, 2016

This week saw some consolidation in the DAX index as was the norm with stock markets all over the world. With the stock indexes all around the world at their highs and with many global risks like the uncertainty over the Brexit process, the concern over the strength of the Chinese economy, the low oil prices and the timing of the US rate hike, still swirling around, buyers and investors are still not fully convinced about entering into large buys as the investor sentiment is pretty low in many of the major countries of the world. Add to this is the fact that we are in the last quarter of the year which is generally a holiday season at different times in different parts of the world and we have the US Presidential elections around the corner, it is indeed a bad time to think of large investments and that is the reason why we see the consolidation in the stock markets.

Though the DAX has broken through 10700 on broad based risk on sentiment, we still cannot deem it as a clear break of the resistance as the price hasnt pushed through with force and momentum seems to be lacking. True breakouts are those that have big follow throughs with a lot of momentum but for the reasons stated above, we see that the momentum is lacking in the break of 10700 and what we have is more of a consolidation than anything.

In the upcoming week, we have the German Ifo Business Climate data coming in on Tuesday and the market expects a strong reading in the data as the German economy remains largely unaffected by the Brexit process so far. A good reading of the data could spur the DAX higher and it is then that we will know whether the break of 10700 is here to stay and will lead to higher highs. A worse reading would make the index fall back into the range between 10200 and 10700 and then we will be in for some more consolidation in the coming week.