Germany's Stocks Capitulate as Decline Triggers DAX Death Cross

European Stocks Snap Winning Streak, Traders Wait on Fed
  • DAX Index has lost 18 percent from its record in April
  • Market strategist at BBSP sees a ``deep correction''

German equities, which have already lost most of their gains for the year, have now fallen into a bearish chart pattern known as a death cross.

The DAX Index’s 50-day moving average dropped below its 200-day mean for the first time in a year. For technical analysts, that’s a sign that price momentum is fading. The gauge has fallen 18 percent since reaching a record in April, leaving it up only 3.5 percent for the year.

“It’s the market saying we want to see a retest of the August low and touching even a new low,” said Jean-Charles Gand, a senior market strategist at BBSP SAS in Paris. “For now we see a deep correction, but this is a cyclical correction in a long-term trend upwards.”

The DAX tumbled the most in four years in August and briefly entered a bear market as concern grew that its exporters would suffer with a slowing Chinese economy. It had jumped as much as 26 percent this year as the European Central Bank began its quantitative-easing program, triggering a weakening of the euro.

The last time the DAX formed a death cross, the index dropped 12 percent in five weeks to a one-year low. It then surged 44 percent to a peak in April.

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