Here’s why the DAX Index is on the cusp of a steeper crash soon

The DAX Index slumped by over 2% on Thursday and is hovering at its lowest level this year as energy prices surged, making most companies in the index less competitive. It dropped to €23,000, its lowest level since March 9th, and nearly 10% below its highest point this year. 

German stocks plunge amid the ongoing energy prices

The DAX 40 Index retreated as investors reacted to the latest energy price surge. Data shows that European gas prices jumped by 22% on Thursday, bringing the year-to-date gains to 137%. These gas prices have jumped by nearly 60% from the same period last year.

Other energy prices have surged as well. For example, Brent, the global benchmark, has jumped by 90% this year and by 62% in the last 12 months. Coal has also jumped by 30% this year.

Soaring energy prices are risky for the German economy because of its impact on inflation and the cost of doing business. That’s because many of these companies are in energy-intensive industries, which will make them highly uncompetitive.

Some of the most exposed companies are in the automotive industry, which are finding major challenges, including the ongoing competition from Chinese companies like Xiaomi, BYD, and Li Auto. Already, Volkswagen has announced that it would cut over 50,000 jobs by 2030.

The rising crude oil price surge has led to concerns about inflation in the region, making it hard for the European Central Bank (ECB) to cut interest rates. 

A report released on Wednesday showed that the headline Consumer Price Index (CPI) rose from 1.7% in January to 1.9% in February, while the core CPI rose from 2.2% to 2.4%.

Consequently, European bond yields have continued rising this month. Data shows the German government bond yields jumped to 2.98% on Thursday, up from the year-to-date low of 2.64%.

A report by Bloomberg notes that the European Central Bank will now hike interest rates two times this year as it battles the elevated consumer inflation.

Most DAX Index constituents are in the red today. Vonovia stock price dropped by 8.95% on Thursday, making it the top laggard in the index. This retreat happened even after the company announced its first profit in years.

Siemens Energy stock dropped by 4.4%, while companies like Infineon, Siemens, Heidelberg Materials, Adidas, BASF, and Continental fell by over 2.95%.

DAX Index technical analysis 

DAX Index chart | Source: TradingView 

The daily chart shows that the DAX Index formed a double-top pattern at €25,500 and a neckline at €24,263. A double-top is one of the most common bearish reversal signs in technical analysis.

The stock is attempting to form a mini death cross pattern, which happens when the 50-day and 100-day Exponential Moving Averages (EMA) make a bearish crossover pattern. 

A break below the key support level at €22,927, its lowest level on November 21, will point to more downside, potentially to €22,000.