The German DAX had a terrible February, with the leading German index breaking under the 15,000-support level and eventually tumbling towards the 13,800-support region.
Many other European indices are recovering on the first day of March despite the Ukraine crisis, however, the GER40 is still vulnerable to further monthly losses after February’s bearish price close.
Technical analysis shows a clear case of mean reversion. Meaning, that when price gets overstretched in one direction it often reverts back to the mean price as traders reprice the asset.
The Bollinger Band indicator is a wonderful indicator for mean reversion strategy. The GER40 has recently moved back to the mean on the monthly time frame, meaning mid-Bollinger Band.
This sets up an interesting dynamic for March, as the GER40 is no longer overbought and could be fair value at current levels. As always, the asset will either drift towards the lower or upper band now, after reverting backing to the mean.
Looking at sentiment towards the DAX, a bullish bias is still in play with 59 percent of traders expecting more gains. This provides the conditions for a continuation of the downtrend, as retail traders are still bullish.
Overall, if bears are able to get past the 13,800-support zone in the coming trading days and weeks it should be raising a red flag for more losses GER40. Sentiment is pointing to more losses.
GER40 Technical Analysis
The GER40 index has activated a large head and shoulders pattern on the four-hour time frame but has yet to meet its downside projection. This usually means a continuation of the directional move is still going to take place until the target is hit..
Should we see the lower continue, then I think we could see the 13,500-support level reached, to complete the final target of the bearish pattern.
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The monthly time frame shows that the German DAX has formed a series of bearish lower highs and lower lows, while the Bollinger Band indicator shows the GER40 has reached the mid-line.
The final confirmation needed for a medium-term sell signal is sustained moving around from the medium band, meaning that mean reversion to the downside is underway.
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