DAX 30 analysis: exciting times ahead?

The DAX 30 is correcting in an uptrend as its expansion approaches

Germany’s benchmark stock index, the DAX 30, will undergo a major overhaul on 20 September when it will expand to include 40 companies as opposed to its current 30. This is in an attempt to make the index more attractive, with the inclusion of future-oriented companies.

Stephan Flagel, chief product officer for indices and benchmarks at Qontigo, the financial technology company that is part of Deutsche Börse Group, was reported in Bloomberg as saying: “We are completing the biggest DAX reform in our history, manifesting the DAX as the German blue chip index, which will represent a larger spectrum of the German capital market.”  

The plan for the proposed change picked up momentum after the collapse of the German payments company Wirecard. Under the new rules, DAX constituents failing to publish quarterly statements and audited annual results will be booted out. According to the Financial Times, prospective DAX candidates will have to report positive operating profit for two full years before they get a place in the new index.

Manfred Schlumberger, portfolio manager at Starcapital, was not convinced that the changes make the DAX more attractive, however. According to him, European indices lack a high portion of future-oriented industries, such as technology and communications, compared to US indices.

Schlumberger said: "The DAX doesn't get that through the overhaul because those industries simply don't exist here," Reuters reported.

In addition to the revamp, the forthcoming German federal election will also weigh heavily on the DAX. That’s because no matter the outcome, there will be a change in leadership as Chancellor Angela Merkel is not seeking a fifth term.

With major events due to take place in the next few weeks, what do the charts project? What is the Dax 30 prediction? Read our DAX 30 analysis to find out.

DAX - Weekly chart
DAX - Weekly chart. Credit: Currency.com

The DAX 30 has doubled since its March 2020 low of 7,962.60 to hit a high of 16,031.10 in August of this year.

For the past few weeks, however, the pace of the rally has slowed and the index has dropped to the 20-week exponential moving average (EMA). The relative strength index (RSI) has formed a negative divergence, which also warns that bulls may be losing their grip.

If the index breaks and closes below the 20-week EMA, the correction could extend to the 50-week simple moving average (SMA) and then to the breakout level at 13,800. 

Conversely, if the index rebounds off the current level and rises above 16,031.10, it will indicate the start of the next leg of the upwards movement towards a long-term target objective of 19,638. 

DAX - Daily chart
DAX - Daily chart. Credit: Currency.com

The DAX 30 has been trading inside an ascending channel for the past few months. The moving averages are flattening out and the RSI is just below the midpoint, indicating that the bears have a slight advantage.

The bulls are attempting to push the price back above the moving averages but the bears are proving a stiff challenge. If the price turns down from the current level and breaks below 15,447.20, the index could drop to the channel’s support line.

A strong rebound off this support could keep the index inside the channel for a few more weeks. But if the index breaks below the channel, selling could intensify.

If the bulls drive the price above the moving averages, the index could again rise to the resistance line of the channel. This line is likely to act as a major resistance point but if buyers can push the price above it, the bullish momentum could pick up.

DAX 30: buy or sell at these levels?

The DAX 30 analysis shows the index is witnessing a minor correction in an uptrend. If the index remains inside the channel, dips may be viewed as a buying opportunity but a break below the channel could result in a change in trend.

The views and opinions expressed in the article are those of the author and do not constitute trading advice. Trading and investing involve substantial risks and you should do your own research or contact your financial adviser before arriving at a decision. As always, never invest more than you can afford to lose and remember that stocks can go up or down. 

Trade DAX stock: DAX shares price

Germany 30
Daily change
Low: 15470.8
High: 15587.3

Further reading

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