DAX analysis: Stocks resume lower as macro concerns linger

• DAX analysis: Stocks lower after Friday’s breather as bond yields rise again
• Tech stocks remain vulnerable amid high yields, rising crude oil
• DAX technical analysis point further lower

European stocks and US index futures resumed lower in the first half of Monday’s session after Friday’s short-covering bounce. Though the markets managed to stage a mild bounce off their earlier lows, the lack of any important data or central bank speech today means there won’t be any fundamental triggers to cheer investors up. Consequently, we are expecting to see further bearish price action once US investors enter the fray later on.

Why are stocks struggling?

Markets have struggled in recent weeks amid concerns over rising oil prices and bond yields, subdued economic activity across the global manufacturing sector and still-high inflation in major developed economies. As a result, investors have lost appetite for taking on too much risk. Traders have been happy to sit on the offer and slam asset prices back down each time we see a bit a of relief rally. This was highlighted on Friday, when markets staged a rally before a late-day sell-off saw the major indices on Wall Street to close lower. While this week’s macro calendar is quieter, markets could remain lively. As more and more support levels break down, this is likely to trigger follow-up technical selling.

German yields hit fresh 2023 high

It is diffidently worth keeping a close eye on bond yields, which continue to rise relentlessly. Last week saw the benchmark, US 10-year yields hit 4.500%, its highest level since 2007, before falling on Friday. Today, however, it is once again on the rise, testing this key level. Meanwhile, it is not just the US 10-year breaking out. German bunds are also moving in the same direction. The yield on the German 10-year debt has broken above the March high of 2.770% to reach its best level since July 2011.

DAX analysis: Stocks could fall further amid rising yields, crude oil

Today’s breakout in the German 10-year bond yield is likely to further discourage stock market investors from buying the dip. Concerns over stagflation in Europe are on the rise. Here, data continues to come in weaker and there are rewed concerns over oil prices stoking inflationary pressures. As a result, the ECB may have to keep a contractionary monetary policy stance in place for a lot longer than needed.

DAX technical analysis

The German DAX index has been flirting with the July low of 15450 for several weeks now and today it finally dipped below it to hit its lowest level since March. The DAX closed lower last week and barring a sharp recovery this week, it could close lower for the second month in a row. With the index already below its bullish trend line, which it broke last month, as well as the 21- and 200-day moving averages, the technical bias is clearly no longer bullish. For this reason, we are continuing to favour bearish trade setups over bullish ones. A decisive break below 15450 today could pave the way for the base of the breakout from earlier this year around 15260 next. Resistance is now seen around 15575, which was previously support and where the 200-day comes into play. This level was already tested earlier this morning, before the index turned lower. 

Source for all charts used in this article: TradingView.com

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R