GER30 At All Time High

  • GER30
    (${instrument.percentChange}%)

Introduction

The GER30, FXCM's proxy for the DAX, is running rampant. It has charted an all-time high this week. Moreover, this is its sixth week of price appreciation. Of note, the index is up 9.9% since its 6 October low. This is is an astounding rate of change. It raises the question of just how long should we expect this to continue?

In the near term, it would make sense for the GER30 to run into exhaustion. However, until proven otherwise, the GER30 is in a bull market. This article will first consider the index short-term analysis. In particular, we will consider short-term excess. After that, we will analyse the GER30 on a longer-term basis.

Short-Term Analysis


Past Performance: Past Performance is not an indicator of future results.

The above is the daily chart of the GER30. We have added the RSI indicator, which is a measure of the index's momentum and price change. RSI is bounded between 0 and 100 and our settings infer an overbought excess at 80 and above, and an oversold condition at 20 and below. Thus, RSI tends to follow a pseudo-Pareto principle, spending the majority of its time between 20-80.

Before the current excess (blue rectangle), RSI registered as overbought twice since the low of March 2020 (blue vertical) with only one oversold condition (red vertical). These frothy readings prompted pullbacks of varying degrees as the oscillator normalised. As such, prudence suggests that a correction at current levels is likely due in the near-term.

Long-Term Analysis


Past Performance: Past Performance is not an indicator of future results.

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The above shows the weekly chart of the GER30. Here we are looking specifically at the price to decide the trend. The classical definition of an uptrend is a higher trough followed by a higher peak. At the moment price has only two of four points, the reference trough and reference peak. We have annotated the peak with a "?" as the current leg may not have completed. The aqua line studies show the next two points that are needed for the trend to be confirmed.

We note, that even if the peak of the week of 7 August is used as a reference, that would only make three points, as opposed to the required four points necessary as per the definition of an uptrend.

Conclusion

The short-term analysis suggests a chance for a correction in the near term. This will normalise an overbought condition. The longer-term analysis suggests that price action is still to conform to the definition of an uptrend. Therefore, as the GER30 corrects on the daily time frame, it may very well be setting the weekly up for the required higher trough. A near-term correction will be considered long-term bullish and as a potential platform for the next leg of the uptrend. We will check and adjust as price action unfolds.

Russell Shor

Senior Market Specialist

Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.

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