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DAX 30 & CAC 40 Technical Forecast: Short Exposure Explodes as Indices Rise

DAX 30 & CAC 40 Technical Forecast: Short Exposure Explodes as Indices Rise

2019-10-17 18:30:00
Peter Hanks, Junior Analyst
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DAX 30 & CAC 40 Forecast:

  • The DAX 30 has run up to resistance after Brexit optimism helped to bolster European stocks
  • Similarly, the CAC 40 surged to its highest level since December 2007
  • Regardless, IG Client Sentiment Data reveals retail traders have increased their short exposure significantly, signaling the rallies may continue

DAX 30 & CAC 40 Technical Forecast: Short Exposure Explodes as Indices Rise

A series of fundamental factors have bolstered the standing of the DAX 30 and CAC 40, which have subsequently pushed through various levels of resistance. As the Brexit saga continues to unfold, the two indices could look to extend their runs higher, but subsequent resistance stands in their way and retail traders are convinced the rally is overdone. With that in mind, the contrarian nature of retail trader data could suggest trend continuation is in store.

DAX 30 Technical Forecast

That said, resistance to the topside will be of critical importance in the event of sustained bullishness. The immediate hurdle – albeit somewhat minor – resides around 12,700. But more importantly, however, a confluence of resistance marked by the ascending trendline from December and horizontal resistance from July 2018 will look to stall an extension above 12800. Should the two levels be surmounted, the next notable area of resistance may rest at 13200.

DAX 30 Price Chart: Daily Time Frame (January 2018 – October 2018) (Chart 1)

DAX30 Daily Price Chart

If, on the other hand, retail traders are correct in their assumption that the DAX 30 is overbought, technical support at the 12460 and 12210 levels will look to buoy the German Index before the 200-day moving average can assist around 12050.

German30 Client Positioning

Retail trader data shows 27.99% of traders are net-long with the ratio of traders short to long at 2.57 to 1. The number of traders net-long is 5.83% lower than Wednesday and 29.83% lower from last week, while the number of traders net-short is 6.67% lower than Wednesday and 36.00% higher from last week. We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests Germany 30 prices may continue to rise – bolstered by the divergence in short and long interest.

CAC 40 Technical Forecast

The French equity index, the CAC 40, finds itself in a similar position to the DAX. Soaring to its highest level since December 2007, the CAC has pierced multiple levels of resistance in recent weeks as it looks to reclaim levels not seen in this decade. A familiar trendline from December will look to rebuke the CAC’s rally, residing around 5745. At this time, the level appears to be the sole technical hurdle between the Index and the more robust resistance around 5900 which could allow for another quick surge if bullishness persists.

CAC 40 Price Chart: Daily Time Frame (November 2017 – October 2019) (Chart 2)

France40 Daily Price Chart

Retail trader data shows 20.14% of traders are net-long with the ratio of traders short to long at 3.97 to 1. The number of traders net-long is 0.49% higher than Wednesday and 10.04% lower from last week, while the number of traders net-short is 6.74% lower than Wednesday and 23.23% higher from last week. We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests France 40 prices may continue to rise.

France40 Client Positioning

--Written by Peter Hanks, Junior Analyst for DailyFX.com

Contact and follow Peter on Twitter @PeterHanksFX

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