One significant trend to mention in the first four months of the trading year is the strength in European equities. Major European indices rallied since the start of the year, despite the old continent facing a major crisis.
In theory, high inflation and the war in Ukraine should have scared any investors willing to park funds in Europe. Because of high inflation, the interest rates have risen at a faster pace, so stocks should have been hurt.
In reality, investors bought European stocks like there was no tomorrow. For example, the Dax index rallied almost 2,000 points, trading close to all-time high levels.
So where will the leading German stock market index go from here?
Dax chart by TradingView
16,000 is a pivotal level for the Dax index
Back in the second half of 2021, when everything looked bullish in the stock market, the Dax index had several attempts at the 16,000 level. It failed every time, leading to the belief that it had formed a triple-top pattern.
Indeed, the year that followed was extremely bearish. Until last October, the index delivered losses to its investors.
But even on its way down, the Dax formed a falling wedge pattern. Such a pattern appears at the end of bearish trends and is often fully retraced by the following price action.
Therefore, a new attempt at 16,000 is in the cards, which might be decisive this time. A close above 16,200 would trigger more upside as bears will have to take some losses.
Overall, the more time the index spends below 16,000 to consolidate, the more likely it is that it only builds energy before making a new all-time high.
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