Key Talking Points:
- Equity markets remain supported by economic stimulus in the US and improving vaccination rates
- DAX 30 aiming at 15,000 despite overbought conditions intensifying
Positive sentiment is still spilling into equity markets this morning as the DAX is setting a new record high, despite increasing cases of Covid-19 in Europe. Bond yields are also on the rise again as many investors believe that the Federal Reserve will raise rates sooner than expected on improving economic data and outlook, boosted by both Fed Chairman Powell and US Secretary Yellen last week.
It seems that focus remains on the expected recovery in stocks after the health crisis is over, so no one wants to be late to the party and say they missed out on the recovery in equity markets. In addition to the rapid progress in vaccinations, the economic stimulus introduced by President Biden is supporting this optimistic view on future recovery, which is keeping European equities well supported. At this point, money seems to heal all for investors, and Biden’s promise of further stimulus for infrastructure is like music to their ears.
DAX 30 Levels
The German index has been soaring past resistance levels since last Thursday and is now set to target the 15,000 level, which could be attempted this week. I expect increased selling pressure at this psychological level, at which point we may see a small correction, followed by some dip buying to bring the index higher again.
Essentially, the picture remains pretty bullish at this point despite the strong signals about the DAX 30 bullish run being overstretched and expensive. So I find it hard to see any new buyers coming into the picture above 15,000, but if we continue to see positive momentum spilling in from the US I wouldn’t be surprised if the index breaks above that level easily.
Alternatively, if selling pressure increases we may see fear about the third-wave of Covid-19 in Europe creep into European equities, so bullish momentum may be limited. If so, look for a break below 14,400 for a signal that bears are putting in a solid attempt, followed by a break below 14,140 as a signal that bears are now in control, at which point 13,600 looks like a good target.
DAX 30 Daily chart
of clients are net long. of clients are net short.
— Written by Daniela Sabin Hathorn, Market Analyst
Follow Daniela on Twitter @HathornSabin