Momentum Indicators Signal DAX Decline, Commerzbank Says

Germany’s DAX Index (DAX) may decline as much as 3.5 percent in the next two weeks as momentum indicators on the benchmark gauge weaken, according to a technical analyst at Commerzbank AG.

“The DAX should see a consolidation given that it had a very strong move since Oct. 10, which left an overbought technical situation,” Petra von Kerssenbrock, a technical analyst at Commerzbank in Frankfurt, wrote in an e-mail. “The DAX started a moderate bull market channel in November 2012. The recent strong upward push has led the index to the upper trend line, which also shows that a consolidation is due.”

The DAX climbed 0.4 percent to 9,040.87 yesterday, bringing its advance since Oct. 10 to 4.1 percent. The gauge has surged 23 percent in the past year as the Federal Reserve maintained its stimulus program and the European Central Bank cut interest rates to a record low.

The DAX’s Moving Average Convergence Divergence line has crossed below its signal line, suggesting that the rally is losing steam, according to Kerssenbrock. The relative strength index on the gauge fell below 70 yesterday, which may indicate short-term losses, she said.

“For now, the index is trading between 8,950 and 9,072 and has not yet delivered a new signal,” Kerssenbrock said. “A slide below 8,950 should indicate a short-term consolidation, which could last up to two weeks, during which the gap at 8,725 should be closed. Currently, it looks like a short-term consolidation only.”

In technical analysis, investors and analysts study price graphs to predict changes in a security, commodity, currency or index.

To contact the reporter on this story: Jonathan Morgan in Frankfurt at jmorgan157@bloomberg.net

To contact the editor responsible for this story: Chris Nagi at chrisnagi@bloomberg.net

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