We've been highlighting the importance of the German Stock market (DAX) for the past couple of years. This key stock index seems to have risk-on and risk-off influence over key stock indices in the states.
From a 30,000-foot view point, the DAX remains in a long-term rising channel, which has been in play for the past 6 years.
Over the last year, the DAX has created series of lower highs, from which it now has the chance to break free. At this point, the DAX is testing falling resistance and its 50% retracement level, based on its weekly “closing highs” in 2016 and its weekly “closing lows” earlier this year, at (1).
A breakout above (1) would suggest a break of its 1-year falling trend, which would be a positive for the risk-on trade both abroad and in the states.
If selling starts increasing at (2) -- causing the DAX to break short-term rising support -- it could bring about more selling in this leading global stock index, which could ripple into the markets in the states.
We think the DAX is important on a global scale and is currently at a price zone where risk-on traders hope that support holds at (2).