Key Talking Points:
- DAX 30 resumes pullback ahead of earnings season
- Range tightens as triangle pattern nears end
The DAX 30 rally is looking exhausted once again as the German index leads the losses in Europe this morning after a weaker than expected June services PMI reading (57.5), despite a big jump from the previous month’s reading (52.8).
After the strong rally over the past two months, the DAX 30 was looking ripe for a breather as renewed virus and geopolitical concerns emerge. The Daily chart is showing evidence of consolidation with a negative bias in the short-term although a strong economic environment and continued cheap financing conditions are likely to keep the German index supported in the medium term.
With a focus on the earnings season coming up soon, stocks performance will be contingent on market expectations surrounding an extraordinary year for company performance. The question is whether we will start to see a return to normal earnings after the peak in the last few months, and how will stock performance be impacted by this inevitable drop to more normal levels. The earnings season is likely to mark the pace of equities in the US when it kicks off next week, with special attention to future guidance and earnings calls as investors are likely to look for guidance about the rest of the year.
DAX 30 4-hour chart
Looking at the 4-hour chart the DAX 30 is trading in a symmetrical triangle pattern. The bias is slightly skewed to the upside as the trendline support has been in play for longer but the resistance trendline has recently been narrowing down the range towards the peak of the triangle pattern. Volatility is expected to pick up towards this area as a break on either side is anticipated.
The initial pullback from today’s session found perfect support on the ascending trendline which reinforces the pattern’s strength. The DAX 30 should stay above 15,540 over the coming days as the triangle consolidates, fluctuating around the 15,500 mark. On the upside, resistance is likely to hold at 15,700 as the triangle narrows towards its tip.
| Change in | Longs | Shorts | OI |
| Daily | -9% | 7% | 2% |
| Weekly | -27% | 9% | -5% |
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--- Written by Daniela Sabin Hathorn, Market Analyst
Follow Daniela on Twitter @HathornSabin
