Home > Should you buy the Dax index amid better German PMI data?

Should you buy the Dax index amid better German PMI data?

The German Dax index trades with a bearish tone today, despite better than expected PMI data. Is it time to buy the dip?

The Dax index in Germany trades with a bearish tone today, failing to react to the positive PMI data. Earlier today, the German PMI Composite Output Index came out at a 2-month high, at 52.8. Also, a 2-month high was reached by the Services PMI Activity index, out at 53.4.

On the flip side, the Manufacturing PMI is down at a 10-month low but still prints a solid number, 57.6. Traders should be aware of the fact that the PMI data is interpreted against the 50 level – any print above suggests a sector that expands, while a print below suggests a sector that contracts.

From a technical perspective, the index reacted at dynamic resistance seen at 16,250 points. However, the technical picture reveals a market in consolidation, albeit it keeps rising to a new all-time high every once in a while. In any case, while above 15,000 the bias remains bullish, although we may see more consolidation ahead for at least a few reasons, such as rising COVID-19 cases or political uncertainty.

Fears of new lockdowns weigh on European equity markets

Despite the better than expected PMI data, European equity markets are concerned with the threat of new lockdown. Winter has reached Europe, and thus people spend more and more time indoors. Inevitably, the infection rate rose again, and the pressure on hospitals and the economy mounts.

In some parts of Europe (e.g., Austria), a new 3-week lockdown is in place. In Germany, some voices call for new lockdowns, especially considering that Christmas is coming and people will get together to celebrate with their families.

Political uncertainty also weighs on the Dax index. We should not forget that after the federal elections in September, the country still does not have a functional government. This is Europe’s largest economy and therefore, what happens in Germany affects the entire European economy.

To sum up, the Dax index is back in the consolidation area but remains bullish while holding above 15,000. Any break above dynamic resistance should trigger more strength, while a decline below 15,000 ends the bullish run seen in 2021.

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