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The DAX 30 Is Oversold, But The Bias Is Still Bearish

The DAX 30 Is Oversold, But The Bias Is Still Bearish

Alejandro Zambrano, Market Analyst

The DAX remains under pressure and might try to reach the December swing low of 10,121 over the next few days. Traders looking to short it will probably wait for a pullback to the 10,500 to 10,670 range as the risk-reward ratio favours short positions in this region. To understand how the risk-reward ratio is crucial for profitable traders, see The Traits of Successful Traders Guide. The overall trend is bearish below the December 29 high at 10,878.

One alternative entry for scalpers and aggressive traders would be a break to yesterday’s low of 10,245.

DAX 30 / GER30

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Created with Marketscope/Trading Station II; prepared by Alejandro Zambrano

Yesterday’s soft ISM report Leaves Markets With a Bearish Bias

Yesterday, the crucial leading economic indicator, the ISM Manufacturing Index, slipped to 48.2 from 48.6. As this reading is below the 50 threshold-level, we can infer that the U.S. manufacturing sector is contracting, something which tends to prelude a general slowdown of the U.S. economy. In these circumstances lower stock markets are warranted and with this in mind, I would suspect that the DAX 30 will remain soft in the weeks ahead.

A different measure of economic growth developed by staff at the Federal Reserve Bank of Atlanta, the GDPNow indicator (which has the ISM as one of its explanatory variables), suggests that fourth quarter U.S. GDP growth is now at 0.7% (a seasonally adjusted annual rate). This is estimated substantially lower than that of major institutions and hints that stock markets such as the DAX 30 may well be weak until growth picks up.

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Source: Federal Reserve Bank of Atlanta

--- Written by Alejandro Zambrano, Market Analyst for DailyFX.com

Contact and follow Alejandro on Twitter: @AlexFX00

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

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