German SDAX At Major Crossroads After Sustained Uptrend

Since the low at the beginning of the COVID-19 pandemic in March 2020, the German small cap index SDAX has been in a continuous uptrend. Starting from 7800, the previous all-time high at 13,000 was surpassed again in November 2020 reaching new highs continually until 17,300 in August 2021. The few minor corrections during the past 18 months never surpassed the blue trend support line shown in figure 1. This strong upward trend has slowed down since then and recently fell below the trend line for the first time.

The stock is at an important crossroads, and price action in the coming weeks is likely to be very telling about the direction of trend for the foreseeable future. The long-term uptrend has run into a strong confluence resistance zone. If it breaks above the recent resistance line at 17,300, a strong continuation of the upward trend is likely. This bullish thesis is backed up by the RSI, which continues to abide by the overbought and oversold ranges associated with this uptrend, having recently become oversold around 48.

If the resistance level at 17,000 is not surpassed, this could be a sign for a double top reversal formation and indicate an upcoming dowtrend. The level at 15,765 will be crucial to watch. A drop below here would confirm a new bearish trend. A look at the RSI shows, the past oversold level for the uptrend was at around 50 – 45. The RSI breaching to levels below that would be another important sign for a change in trend.

In summary, the next couple of days will show if the ongoing upwards trend can be confirmed by a new all-time high or if the SDAX bulls have run out of steam, and may be about to give way to a new downtrend.