DAX surges on Greece proposals China rebound

Germany’s DAX index (daily chart shown below) opened sharply higher and continued to surge on Friday after the previous Asian session saw a second day of recovery for embattled Chinese stocks. The Shanghai Composite closed nearly 4.6% up after rising almost 5.8% the previous day. Also boosting the DAX on Friday was optimism surrounding the Greek bailout proposals submitted on Thursday that could trigger a relatively quick end to recent turmoil and volatility in the European markets.

Friday’s sharp advance in the DAX was concurrent with a rise in the FTSE 100 and was followed by surges in the US indices. The DAX had risen by around 2.5% by Friday afternoon trading to approach the 11300 resistance level.

From a broader perspective, the DAX index currently continues to trade within a large descending trend channel that extends back to April’s all-time high around 12390. From that peak to the most recent trough this week around the 10650 level, the DAX has seen a downside correction of approximately 14% within the past three months. The index bottomed out this week right at its 200-day moving average and near the bottom of the descending trend channel.

Friday’s jump has effectively erased part of that correction and lifted the index towards the upper border of the trend channel and also near its downward-sloping 50-day moving average.

While the DAX could very well rise further on a negotiated resolution to the Greece bailout and on further stabilization of China’s equity markets, strong resistance remains immediately to the upside.

If the index is unable to break above the current descending trend channel, a retreat back to the downside could lead to a resumption of the bearish correction back down towards 10500 support and further towards the 10000 psychological level.