- Dax index broke beyond the falling wedge pattern’s upper edge – a bullish signal suggesting more upsides.
- October saw the index bottoming after printing a bullish divergence with RSI.
- The 15,000 area should present a pivotal level, with more strength possible amidst a daily closing beyond it.
European equities as the common currency have suffered this year. The Ukraine conflict welcomed colossal spending in Europe, and that had inflation escalating to new peaks. Though inflation remains a global challenge, Europe saw it intensifying due to the war in the East.
Furthermore, the ECB (European Central Bank) lags behind the Fed Reserve as far as tightening is concerned. That has investors losing trust in the euro and Europe.
Despite the doom & gloom, the euro and European equities have rebounded from their respective lows. For instance, Germany’s primary stock market index, the Dax, appeared to have reversed the trend in October.
Bullish Technical Setups Suggest Further Dax Upside
The unanticipated 0.2% QoQ expansion in Q3 contributed to the European equities’ rise from their respective lows. Furthermore, technical analysis supports more rallies for the index. For instance, the 24hr chart shows Dax has the potential for more upside.
A falling wedge formation and bullish divergence with the Relative Strength Index suggest an upside toward 15,000 pts and possibly beyond.
Bullish Divergence with RSI
The RSI (Relative Strength Index) is an oscillator that computes value-based data over the last 14 trading days. Moreover, its sways between oversold (30) and overbought (70) territories. It prints a contrarian sign when the indicator diverges from the market actions.
In this context, the Dax index hit a new low last month, but the Relative Strength Index didn’t confirm it. That welcomes a bullish divergence before a rally.
Declining Wedge Formation
Besides the discussed bullish divergence, the 24hr chart presented another reversal setup – a declining wedge. These patterns emerge at the bearish trend ends, and the resultant price movement often retraces the overall formation.
Furthermore, the Dax Index recently broke the pattern’s upper edge before retesting it. Traders use such a move to execute longs with stop-losses around the wedge’s lowest level and a book-profit order at the pattern’s highest mark.
Meantime, the Dax appears constructive, with a pivotal zone of 15,000. A 24hr closing beyond this area would welcome more strength.