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April 6, 2021

DAX - Extremes bring the opportunity

Reading time:3 min

Germany is recovering despite a tighter lockdown during 2021. Besides, the threat of rising bond yields and thus worsened financing and bond devaluation have been partially offset by the ECB.

This step was again the driving force for the stock markets. However, from a statistical point of view, the German stock index reaches short-term extremes. Despite the strong bullish momentum and fundamentals that the purchase of bonds by the ECB will continue and fiscal stimulus in Germany will continue, we need to be concerned about statistics.

DAX reaches extremes on the weekly chart and also on the daily chart. This is partly due to the actions of Volkswagen, which we wrote about in the previous article. However, the stock index counts for strong "recovery."

Weekly extremes

In this chart, we can see the number of consecutive weekly candles. We currently have 6 of them on the DAX chart. The index has been rising for six straight weeks, without one week of correction. Since 2014, Dax has maintained a strong bullish trend without a red candle only three times. No one says that even this time, DAX cannot grow for 8-10 weeks consecutively, but in terms of probability, this phenomenon is little likely. Momentum is still strong, but it is expected that next week, maybe this one will turn downwards. Don't imagine a drop of 7-10% or more, but rather a minor correction, which is entirely normal in a healthy bullish trend.

DAX weekly extremes
Source: Tradingview

Daily extremes

A similar phenomenon occurs on the daily chart. The signal is even stronger in the short term because we have a cogency on the weekly and daily charts, which increases our success in short positions in the short term. I say in advance that this is only an opinion in terms of probability and not investment advice.

The DAX's daily chart grows for seven consecutive days, which is almost the most from the observed period. It is significantly higher than the average or median. Usually, the trend tends to reverse after 6-8 days. Again, don't expect a significant drop, but rather a consolidation to the side or a minor correction. From a trend perspective, it's healthy.

DAX daily extremes.
Source: Tradingview

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technical analysis
Walfir Technologies
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WALFIR Technologies is one of the three divisions of WALFIR s.r.o., which is based in Slovakia. The primary interests of this division are analytical, quantitative, and algorithmic systems. The core of the team (Lubos Snirc and Patrik Mackovych) is involved in the Investro project. Both have experiences in global financial and investment analytics and their articles and analyzes can be found on major financial news portals.

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