Should you buy or sell the Dax index amid German industrial production rebounding?

By:
on Jan 9, 2023
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  • German industrial production benefits from the decline in energy prices
  • Dax index finds strong support at 14,000
  • A new attempt at the late 2021 highs should not be ruled out

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Germany is the largest European economy and the engine of European economic growth. Since Russia invaded Ukraine almost one year ago, all eyes have been on Germany and how its dependence on Russian energy affects its economy.

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From a fundamental perspective, the war in Ukraine spelled troubles for European equities. Sure enough, the Dax index, Germany’s most important stock market index, declined sharply in 2022, shortly after the invasion.

But it bounced from its October lows. In doing so, it outperformed US equities for 2022 in a surprise leap of faith from investors. Because of energy prices cooled off in late 2022, German stocks bounced from the lows.

The good news continues. Today, the German industrial production data confirmed that the economy is not as bad as feared.

Production in November 2022 rose by 0.2%, a sharp rebound from the previous -0.4%/. Moreover, production in energy-intensive industrial branches was up by 0.2% as well.

Dax finds support at 14,000 points

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The daily technical picture tells two different stories.

First, the Dax index entered a bearish market after forming a double top pattern at the end of 2021 start of 2022. It kept forming new lower lows and lower highs, a move typically present during bearish trends.

DAX index chart by TradingView

However, at the same time, a falling wedge pattern took shape. Falling wedges are reversal patterns, and the market participants focus on the moment the price action moves above the upper trendline.

At that point, the reversal pattern is considered completed.

Moving forward, the Dax gained close to 3,000 points in an almost vertical rally. It did correct for a while in the last days of 2022, but 14,000 held as strong support.

Therefore, the index remains bullish if the price action remains above 14,000. A move above 15,000 should open the gates for a new attempt to the area where the index failed in late 2021.

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