Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
Access all our platforms from a single account.
Lower levels likely for German equities
Kim Cramer Larsson
Technical Analyst, Saxo Bank
Summary: An SHS pattern that began to emerge in the DAX in early September is now coming into much sharper focus. What's more, several technical indicators suggest that things could get worse from here.
Some weeks ago it became apparent that an S-H-S pattern in the DAX seemed to be unfolding:
Medium term, next couple of months, weekly chart – as of 11.09.2018:
Taking a closer look at the weekly chart an interesting scenario could unfold. Not only has the DAX broken bearishly out of a triangle-like pattern but the index is close to confirming a Shoulder-Head-Shoulder (SHS) pattern – not a straightforward SHS as it has two heads but nonetheless an SHS pattern. (The head was actually a double top which was concluded in Q1 2018 when dipping below 12.000). Another little caveat is that the neckline is sloping downwards. An SHS pattern with a downwards sloping neckline usually performs worse than an upwards sloping neckline, i.e. if breaking the neckline the drop could be of less magnitude – it has already moved most of the way AND if dropping down to test the neckline the 200-week moving average will act as a support which could be around the 11.500 level.
Update as of 11.10.2018:
That’s more or less where we are now. As can be seen from the weekly chart there is not much strong support before around 10.800. So it can get much worse. The 10.800 would be the minimum target for the S-H-S formation.
However, in the short term we could see some rebound. It is not unusual to see pullbacks where the market retests the neckline from beneath before the next likely sell-off. RSI and MACD are bearish with no divergence so all indicators are pointing lower. Bollinger® bands are expanding, indicating the initial stage of a (medium-term bearish) trend.
Daily – GER30
In the short term we could see a rebound and at the time of writing, GER30 is rebounding somewhat from the falling neckline. However, I do not believe the rebound will turn in to a bullish trend any time soon but a rebound towards the resistance at around 11.865 could be seen over the next few days. 11.700 also offer some resistance.
Bollinger® bands are expanding indicating we are in the initial stage of a trend pointing to lower levels. RSI has been indicating a bear trend since July as it has not been able to break above the 60 threshold and GER30 has indeed been in a bear trend since with lower highs and lower lows.
RSI is not showing divergence so lower levels on DAX/GER30 are on the cards.
Latest Market Insights
Quarterly Outlook
-
-
Quarterly Outlook
Equity Outlook: Will lower rates lift all boats in equities?
Peter Garnry
Chief Investment Strategist
After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto... -
Quarterly Outlook
FX Outlook: USD in limbo amid political and policy jitters
Charu Chanana
Chief Investment Strategist
As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ... -
Quarterly Outlook
Macro Outlook: The US rate cut cycle has begun
Peter Garnry
Chief Investment Strategist
The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c... -
Quarterly Outlook
Commodity Outlook: Gold and silver continue to shine bright
Ole Hansen
Head of Commodity Strategy
-
Quarterly Outlook
FX: Risk-on currencies to surge against havens
Charu Chanana
Chief Investment Strategist
Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo... -
Quarterly Outlook
Equities: Are we blowing bubbles again
Peter Garnry
Chief Investment Strategist
Explore key trends and opportunities in European equities and electrification theme as market dynami... -
Quarterly Outlook
Macro: Sandcastle economics
Peter Garnry
Chief Investment Strategist
Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p... -
Quarterly Outlook
Bonds: What to do until inflation stabilises
Althea Spinozzi
Head of Fixed Income Strategy
Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ... -
Quarterly Outlook
Commodities: Energy and grains in focus as metals pause
Ole Hansen
Head of Commodity Strategy
Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...