After contracting in the second quarter, the German economy avoided recession in the third quarter thanks to a strong rise in consumer spending and a small boost from foreign trade. The government expects expansion of just 1.2% in 2014 and 1.3% next year while organizations like OECD and the IMF have slashed their growth forecasts after the ZEW index plunged in October to its lowest level in almost 2 years.
If traders are dealing with choppy markets lately, why should we not have a choppy ZEW Index? Today the same ZEW Index rose for the first time since December 2013 beating even the most optimistic expectation: 11.5 vs only 0.9 awaited. So one month the ZEW touches the lowest level in almost 2 years and the next month hits the highest in almost one year.
I assume the market likes far more this month ZEW because the DAX sparked through 9400 and seems pretty serious to me that it wants to clear 10000 one more time. Many analysts said today that the European growth engine will soon be leading the euro-zone recovery again.
I don't really know if this is really going to happen, but what I know is that ECB is offering the money that the DAX needs to reach new higher peaks this year. Also, recently, the biggest pension fund in the world (GPIF) said that they will increase their allocations in foreign assets and Germany seems pretty cheap now if you compare it with US for example. Oh and let's not forget the most important thing: Santa's rally
Seems like we have all the ingredients we need for the bullish flag to work out in DAX. What bullish flag?
Today's rate action broke the 100 SMA and closed above it. The next resistance is at the 200 SMA and we might see a small rejection there but I have doubts it will be a strong resistance so the next level to look at is the descending trend line which will come in play at 9650 - 9700. After that, 10048 peak might offer some resistance and finally the bullish flag target is 10230.
I will join the DAX bulls even if I used a sarcastic tone in this analysis. I consider it valid but I don't agree with the reasons for which DAX might see new highs in the following weeks/months.