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DAX statistical and technical analysis

Stocks in Europe have fallen again as political and economic tensions continue.

European countries and Russia have many trade relations and current sanctions against Russia can harm not only German companies. Slow, high-inflation economic growth can be very dangerous for the EU after years of expansionary monetary policy. The current price of DAX 500 is 13 905 (March 01, 2021). Let’s now look at statistical and technical analyzes.

STATISTICAL ANALYSIS

Based on a long-term analysis of historical data, the average positive and negative daily returns are approximately 0.98% and -1.05%, respectively. The estimated daily return in both directions based on their probability of occurrence is 0.52% and -0.50%. Yesterday´s return was -3.85%, which is between the second and the third standard deviation! Our scoring is currently neutral (0) for the month-on-month change and -3 for price indexation. Both scorings range from -3 up to 3, which means that we estimate an extreme negative phase of the cycle. The development of the estimated cycles based on our analytical system is shown in the following chart.

DAX daily price indexation

Source: WALFIR

Different moving averages (MAs) help us better identify trends across multiple time frames. We use 3 basic MAs to find out which sentiment dominates each horizon. The purple line represents the monthly , the green line the 6 months and the yellow line the annual moving average. According to all MAs, the DAX is in a bearish sentiment because it is below them. In the case of growth, the monthly MA may be a resistance to the market price.

DAX daily price development

Source: WALFIR

Since the beginning of this year, we have witnessed more downward trends, with the maximum level reaching 6 consecutive days, which is almost the maximum decrease (7 days) in the measured period. The upward trend in recent weeks have not exceeded more than 3 days. However, the maximum for the last 3 years is 8 days. We could use the average long-term ATR (Average True Range) obtained from daily data (1.26%) to estimate Stop Loss orders for our positions. The current value is 3.56%, which is almost three times the average. Approximately 90% confidence interval (return between -2.40% and 2.40%) is shown in the histogram below by a red rectangle.

DAX daily return distribution

Source: WALFIR

We could use the last decile of low to high returns (3.00% ) to estimate Profit Targets, as shown in the chart below.

DAX daily low to high distribution

Source: WALFIR

TECHNICAL ANALYSIS

Basic technical analysis still supports bearish sentiment as the market price creates lower lows and lower highs. The DAX is currently in the demand zone (green rectangle), where is also the psychological level 14 000. The divergence between price developments and RSI currently supports a rather bullish scenario. However, the market price could set new lows this year if it falls below the zone. In that case, the bulls could be prepared to take power at the area of 38.20% Fibonacci retracement level and the psychological level of 13 000.

DAX basic tech analysis

Source: TradingView

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...

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