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The Dax Index: Time To Start Shorting or Go Long?

January 10, 2021 20:07
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10 days ago, EU reached a comprehensive agreement on investment (CAI) with China. Factors such as market access, level playing field and sustainable development is now going in a positive direction. The negotiated result is the most ambitious outcome that China has ever agreed with a third country, says Jürgen Matthes from IW in Cologne. For short sellers in DAX, this should be a factor to pay attention to, especially since EU and China might be on their way to reach a free trade deal that could take economic growth to new levels.

The new trade deal between China and EU

Data from Eurostat, shows that EU exports exceeds €198 billion to China, with imported goods worth €362 billion. ShortSelling.com estimate that a free trade deal might be near for EU and China, which would give a real kick to Dax Index. We assume you know what the Dax Index is, but if not – check out the section below.

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What is the DAX index?

Deutscher Aktien Index or DAX Index as non-Germans usually call it, is the benchmark index for the German equity market. DAX tracks the performance of 30 selected German blue-chip stocks. Last Friday, the DAX index advanced above the 14,000 resistance for the first time ever, supported by better-than-expected German industrial output data. It is important to mention that hopes of more fiscal stimulus in the US also support European equities, but investors remained concerned about record COVID infections and new lockdowns across Europe. The situation with covid is not better in the US, and the market continues to dump the US dollar as the US is getting more and more difficult with a sharp drop in employment.

DAX is in a bull market

The DAX Index remains in a bull market, but there will certainly be lots of opportunities for shorting this index despite this. German policymakers indicated unprecedented levels of uncertainty over the economic future, and despite tough restrictions, Germany reported 45K new coronavirus contagious on Thursday.

Corona can be a negative factor for DAX

The European Union secured an agreement to purchase an additional 300 million doses of Pfizer and BioNTech's COVID-19 vaccine, and the positive news is that the UK's regulatory agency has approved the use of Moderna's COVID-19 vaccine last week. The European Central Bank announced a new Pandemic Emergency Purchase Program (PEPP), which was expanded in June to €1.35 trillion through at least the end of this same month in 2021. The second wave of contagion has hurt Europe and Germany, resulting in fresh restrictions, and the pace of monetary stimulus will remain high as long as economies struggle with the virus. Europe believes in an economic comeback for mid-2021, and the economic comeback could mean decreasing stimulus for 2021, and the DAX Index may take the hit, leading to more modern short sellers entering DAX index.

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Technical analysis for DAX 30, JAN 2021

The DAX Index has advanced above 14,000 points for the first time ever, but my opinion is that there will undoubtedly be lots of opportunities for shorting this index. Better-than-expected data on German industrial output gave a significant boost to the DAX index, but it is important to mention that hopes of more fiscal stimulus in the US also support European equities. The global political tensions have a big influence on the DAX Index, and the DAX needs to fall below 13,000 points to extend moves lower. I marked support and resistance levels on this chart- 14,500 points represent the current resistance level, 13,000 and 12,000 points are the current support levels. If the price jumps above 14,500 points, it would probably reach the 14,700 level very soon; the next target could be located around 15,000 points. If the price falls below 13,000 points, that could be a very good opportunity for the short- term traders; short-term traders can put the stop loss at 13,150 and take profit at 12.700 or below.

Conclusion

Last Friday, the DAX index advanced above the 14,000 resistance for the first time ever, supported by better-than-expected German industrial output data. It is also important to mention that hopes of more fiscal stimulus in the US support European equities, but investors remained concerned about record COVID infections and new lockdowns across Europe. Shorting the DAX Index is basically betting against the DAX, and when you short the DAX, you are expecting the price to go down instead of up. So you can make money when the price goes in the opposite direction, and for those with great skill is a way to make some good money. The DAX Index remains in a bull market, and it needs to fall below 13,000 points to extend moves lower. If the price falls below 13,000 points, that could be a very good opportunity for the short- term traders; short-term traders can put the stop loss at 13,150 and take profit at 12,700 or below.