Could the DAX be ready for a pullback?

The DAX is at all-time new highs and up 3% since March 8th

U Turn 2

Stock indices (minus the NASDAQ 100) have been on fire lately, some putting in all-time new highs, such as the DJIT and the DAX. Like the Dow Jones Industrial Index, the DAX is the benchmark for the German equity market.  It tracks 30 blue chip stocks that trade on the Frankfurt Stock Exchange.

Looking at the DAX more closely, one may wonder if it is time for the German index to pull back a bit.   

On a daily chart, there are several confluences just above current levels which may provide resistance:

  1. The 161.8% Fibonacci extension from the highs of September 3rd, 2020 highs to the October 29th lows, near 14,775.
  2. The 161.8% Fibonacci extension from the highs of January 8th to the lows of February 1st, near 14,671.
  3. The upper trendline of the rising channel that the index has been in since November 2020.
  4. The price divergence with the RSI, as price puts in a higher high and the RSI puts in a lower high.

Source: Tradingview, City Index

In addition, on a 240-minute timeframe:

  1. The DAX closed just above the 161.8% Fibonacci extension from the February 8th highs to the February 26th lows near 14,552.
  2. The DAX had been trading in a sideways channel from February 1st to March 7th, and on March 8th it finally broke above.  The target for a channel is the height of the channel added to the breakout point, which is near 14,780 (see point 1) on the daily timeframe
  3. The RSI is in overbought territory, which is an indication price may pullback

Source: Tradingview, City Index

Also, there is an ECB meeting in a few hours. (See our ECB Preview) .  Give the 3% gain in the DAX since the breakout of the channel,  there may be some traders looking to take risk off the table ahead of the meeting.

The DAX is at all-time new highs and up 3% since March 8th.  Can the index move higher?  Of course. However, nothing moves in a straight line, and with the near-term targets, resistance, and overbought conditions, as well as an ECB meeting shortly, price may pullback before it goes higher.

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