DAX drops below rising wedge pattern – will bears take charge?

The German DAX index declined slightly on Friday, falling below the steep uptrend line, likely marking the top in the current uptrend momentum.

German manufacturing sector remains sluggish

S&P Global/BME research indicated Friday that the German manufacturing sector contracted more in April, while the services sector fared better.

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This month’s Manufacturing PMI in the economic powerhouse of the Eurozone came in at 44.0, below the projected 45.7 and the previous 44.7. That was a 35-month low in the index. In contrast, the Services PMI increased from 53.3 in March to 55.7 in April, jumping to a one-year high.

In April, the S&P Global/BME Composite Output Index for Germany came in at 53.9, above both the consensus forecast of 52.7 and the previous month’s reading of 52.6. In addition, the rate of growth in the index surged to fresh highs not seen in a year.

EU with the same scenario

Manufacturing activity in the Eurozone unexpectedly fell further in April, according to the latest assessment of the sector conducted by S&P Global on Friday.

In April, the Purchasing Managers’ Index for Manufacturers in the Eurozone came in at 45.5, below the forecasted 48.0 and the prior reading of 47.3, falling to a 35-month low in the index. The Services PMI for the bloc increased in April to 56.6 from 54.5 in March and 55.0 in February. This was a 12-month high.

In April, the S&P Global Eurozone PMI Composite rose to 54.4 from both the prior month’s 53.7 and the previous month’s 53.7 levels, reaching an 11-month high.

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Vice President Luis de Guindos of the European Central Bank (ECB) recently spoke at a conference in Madrid called “Catedra de Economa y Sociedad,” hosted by the nonprofit organization Fundación La Caixa. He stated that the ECB will continue to communicate monetary policy on a meeting-by-meeting basis, rely on data, and delay shifting to forward guidance for at least a few more months.

“I’m convinced that core inflation will also come down, but starting point is very high,” he added.

SAP guidance weighs on DAX

Following the sale of its subsidiary Qualtrics, business software giant SAP lowered its annual profit outlook, causing SAP shares to fall on Friday, weighing on the whole DAX index.

The computer giant now expects its non-IFRS operating profit for 2023 to fall within the range of €8.6 billion to €8.9 billion, down €200 million from its prior forecast. In addition, it now forecasts revenue from its core cloud business to range from €14 billion to €14.4 billion, down €1.3 billion from previous projections.

As previously mentioned, the daily chart seems like a steep rising wedge pattern, a bearish reversal formation. Thus, the next target for bears is at 15,600, followed by the next demand zone near 15,200.