Where election risks lie Part II - DAX

At the start of the week, the inclination of equity traders and investors may have been to sit on their hands. To remain long and to wait for the next leg higher in stocks to commence, after a Democratic “Blue Wave” and the likely quick delivery of another round of U.S. fiscal stimulus.

Charts (5)

The lack of market gyrations in recent weeks seemed conducive to this plan. The bellwether U.S stock index, the S&P500 trading in the middle of an eight week 3600 to 3200 range. While the German stock market, the DAX appeared even more steadfastly anchored within a fourteen-week 13500 to 12250 type range (basis cash indexes for both).

However, markets have an uncanny ability to find pressure points and provoke a reaction.

While traders may be willing to assigned a low probability to President Trump's re-election chances and given up on the idea of a pre-election fiscal deal, it has become increasingly difficult to ignore the surging second wave of COVID19 cases in Europe and the U.S.

In an article earlier this week we outlined the reasons why the EURUSD was vulnerable, due to positioning and a slowdown in European growth as a result of renewed lockdowns.

Overnight those fears appear much closer and spread to the DAX, as it was announced German Chancellor Merkel was considering a “lockdown light” and that France was considering full lockdowns in some cities.

The Dax already on the backfoot after shares of SAP collapsed 20% earlier this week, closed below the bottom of its fourteen-week range, and below the neckline of a head and shoulders topping pattern as viewed on the chart below.

Admittedly a sustained break of the last bastion of support, the 200-day moving average is yet to be realised. However, based on the indicative pre-market open this could occur tonight and would then open the way for the DAX to retreat towards the high of late April, 11,300 area.  

To negate the risks of the current correction deepening, the DAX needs to promptly reclaim the broken neckline 12,500 area on a closing basis.

Where election risks lie Part II - DAX

Source Tradingview. The figures stated areas of the 28th of October 2020. Past performance is not a reliable indicator of future performance.  This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

From time to time, GAIN Capital Australia Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.