German Stocks May Decline as DAX's Momentum Abates

A gauge of German stocks may drop if indicators signaling that the DAX Index lacks momentum are confirmed by a break below two support levels, according to an analyst at Louis Capital Markets LLP.

The Moving Average Convergence-Divergence line, or MACD, on a graph of the DAX’s weekly highs and lows has crossed below its nine-day moving average, showing a lack of momentum, Louis Capital’s Andy Dodd wrote in e-mailed comments. Also, the Relative Strength Index on the gauge fell through last week, diverging from the trend of the German equity benchmark, and providing a second bearish signal, Dodd wrote.

A break below 7,600.41, which was the DAX’s intraday peak in the first week of May 2011, followed by a drop below 7,478.53, the gauge’s highest level in the third week of September 2012, would confirm these bearish indicators, according to the London-based technical analyst.

“I remain long whilst the short-term uptrends exist, but am happy to sell rallies and will probably reverse the positions on a break of the uptrends and supports,” he said in an e-mail.

The DAX gained 0.5 percent to 7,628.73 in Frankfurt yesterday, following its longest weekly losing streak since April. The gauge has added 0.2 percent so far this year, the fourth-worst performance among 24 developed-market equity indexes tracked by Bloomberg.

Still, Dodd said it’s too soon to recommend a short position on the index. The DAX last week touched a trend line connecting the weekly lows of June and November 2012, which may show a consolidation of the gauge’s recent advance.

In technical analysis, investors and analysts study charts of price, volume and other trading data to predict changes in a security, commodity, currency or index.

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