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

Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.