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DAX 30, Euro Stoxx 50: Bear Market Rally Leaves Global Markets at Risk of Bull Trap

DAX 30, Euro Stoxx 50: Bear Market Rally Leaves Global Markets at Risk of Bull Trap

Justin McQueen, Strategist

DAX, Euro Stoxx 50 Price Analysis & News

  • Short Term Gain on Month and Quarter End Flows, Long Term Pain
  • DAX | Eyes on Portfolio Rebalancing Flows in Short Run
  • Euro Stoxx 50 | Bias Remains Bearish Below 2874

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DAX | Eyes on Portfolio Rebalancing Flows in Short Run

A notable rebound last week in the DAX, however, we view this as nothing more than a bear market rally (similar to that of 2008 global financial crisis) and therefore expect further downside going forward. As it stands, the DAX remains capped by the 38.2% Fibonacci retracement situated at 9937. As such, we still see risks as skewed to further weakness in the index and thus look for a retest of the 50% Fibonacci retracement at 8734. However, be mindful of short-term portfolio rebalancing flows potentially supporting equities into month and quarter end.

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DAX Price Chart: Weekly Time Frame

DAX 30, Euro Stoxx 50: Bear Market Rally Leaves Global Markets at Risk of Bull Trap

Source: IG Charts

Euro Stoxx 50 | Bias Remains Bearish Below 2874

The Euro Stoxx 50 has gotten off to a relatively soft start to begin the week as several countries persist with further lockdown measures, while oil prices extend losses to 2002 levels. That said, as we head towards the month and quarter end, we see portfolio rebalancing flows providing relief to equity markets between today and tomorrow, while we hold a more bearish view on equities from midweek. As such, we see gains limited to 2874 with failure to break above reinforcing a bearish bias on the index.

Euro Stoxx 50 Price Chart: Weekly Time Frame

DAX 30, Euro Stoxx 50: Bear Market Rally Leaves Global Markets at Risk of Bull Trap

Source: IG Charts

--- Written by Justin McQueen, Market Analyst

Follow Justin on Twitter @JMcQueenFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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