DAX Faces Potential Reversal: Bearish Divergence Signals Correction Amid 30% Rally

The German index DAX has enjoyed a robust upward trajectory over the past twelve months, rallying nearly 30%. However, this bullish momentum now faces critical headwinds.

Despite DAX reaching higher highs, the Relative Strength Index (RSI) is failing to confirm these moves by remaining below overbought levels. Instead, it’s exhibiting a bearish divergence on the monthly chart, which often serves as an early indicator of a potential reversal or downside pressure. Compounding this signal, the Moving Average Convergence Divergence (MACD) histogram is showing a bearish trend, reflecting weakening momentum.

In contrast, the Exponential Moving Averages (EMAs) continue to confirm the bullish trend, and the MACD lines remain bullishly crossed, indicating the market still possesses underlying strength. Nonetheless, should DAX enter a correction phase, the next critical support levels to watch are at the previous month’s low of 17,024 and a key horizontal support at 16,290.

This combination of technical factors suggests that while the DAX’s broader trend remains bullish, there are emerging signals that warrant caution as the index approaches potentially pivotal levels.

Weekly Chart Outlook: Mixed Signals

The DAX is currently encountering strong resistance within the range of 18,773 to 18,991, suggesting a potential rejection at these levels. Should a retracement occur, the index may pull back to the 50-week EMA or down to the 0.382 Fibonacci retracement level at 17,325. Additionally, significant support is identified at the Golden Ratio level of 16,290.

Technical Indicators and Trends (Weekly Chart):

• MACD (Moving Average Convergence Divergence): The MACD lines are presently bearishly crossed, but there is potential for a bullish crossover as the histogram has been trending higher for the past four weeks, indicating growing upward momentum.
• RSI (Relative Strength Index): The RSI is showing a strong bearish divergence, with the indicator declining while remaining in neutral territory, hinting at underlying weakness in the current uptrend.
• EMA (Exponential Moving Average): The recent golden crossover of the EMAs confirms the continuation of a mid-term bullish trend. However, short-term downside pressure remains present, highlighting a potential period of consolidation or correction before any further gains.

This mixed technical setup suggests that while the broader trend remains constructive, DAX may face short-term headwinds before any renewed bullish momentum can take hold. Key support levels will play a crucial role in the coming weeks.

DAX at Risk of Further Downside: Critical Support Levels to Monitor

The daily chart indicates the potential for a further short-term pullback in the DAX. However, strong support exists at the 50-day EMA, which currently sits at 18,364. Additional Fibonacci support levels are identified at 18,240 and 17,712, with the 200-day EMA providing another critical support at 17,212. The daily chart gives mixed signals.

Technical Indicators and Trends (Daily Chart):

• MACD (Moving Average Convergence Divergence): The MACD lines are nearing a potential bearish crossover as the histogram has been ticking lower for the past four days, signaling weakening momentum.
• RSI (Relative Strength Index): The RSI has sharply declined after reaching overbought territory and is now oscillating in neutral zones, reflecting a temporary pause in upward momentum.
• EMA (Exponential Moving Average): Despite the short-term pullback signals, the golden crossover of the EMAs continues to confirm a short-to-mid-term bullish trend, reinforcing underlying market strength.

This technical setup suggests that while the DAX faces near-term downside risk, strong support levels could stabilize the index and prevent a deeper correction, potentially setting up a renewed bullish move in the mid-term.

Golden Crossover in 4H Chart Signals Short-Term Bullish Trend Confirmation for DAX

Despite the prevailing short-term bearish outlook, the Exponential Moving Averages (EMAs) have now formed a Golden Crossover, signaling a bullish confirmation in the short-term trend. However, despite this crossover, the DAX may still extend its downward movement toward the next significant Fibonacci retracement levels.

Technical Indicators Overview:

• MACD (Moving Average Convergence Divergence): The MACD remains clearly bearish, with the lines bearishly crossed and the histogram reflecting a persistent downward trend, signaling continued weakness in momentum.
• RSI (Relative Strength Index): The RSI is currently neutral, offering neither bullish nor bearish signals, indicating a lack of conviction in either direction at this point.

In summary, while the Golden Crossover suggests short-term bullish potential, caution is warranted as the MACD’s bearish trend and the neutral RSI indicate mixed signals. A pullback to key support levels remains possible before the next directional move.