Weekly Indices Review - 18 January

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The German index has posted some interesting moves in recent weeks, so for this week’s review we will take a look at the longer term chart to help put these moves into perspective.

The weekly chart details how the market posted a sharp recovery following the pandemic lows. Then it was hit with the double whammy of the new rate hiking environment and the invasion on Ukraine heavily impacting the Germany economy due to its reliance on Russian oil and gas.

This created genuine uncertainty on how industry and households would cope if widescale power outages would be required during a particularly bad winter. Fortunately, the winter so far has been relatively mild and due to the re-organisation of its oil and gas supplies the worst case scenario has been avoided.

This has allowed the confidence in the market to gain in recent weeks. Also of course we have increasing hopes that the Federal Reserve and ECB will be able to continue to slow the pace of rate hikes and may even be able to start cutting in H2.

On the chart we can see how, as is so often the case after a major move, that the 50% area caught much of the sell off through 2022. Price has now decisively pushed through the previous bearish trend blue line, and is above the 38.2% retracement area. Which may add confidence to the bulls that the market is now on track back to its previous highs.

A number of Wall Street analysts remain concerned however that the gains in recent weeks could still be a bear market rally, but they have been waiting for a more medium term correction for some time. In order for this bearish scenario to gain more weight they would need to see price action breaking back under the 38.2% level in first instance, around 13,150.

So while price action stays above 13,150 level the overall positive tone is expected to continue, but coming with a caveat that if prices were to slip, if global recessionary fears were to increase, then concerns over this simply being bear market rally could quickly grab hold.