This article is written exclusively for Investing.com
By the end of a month, the insatiable risk appetite of investors remains intact, with several major global stock indices trading at or near record highs. Sentiment remains supportive towards stocks and other assets that will benefit from a recovery in economic growth, which is well underway in many regions as lockdown measures continue to ease and travel slowly resumes thanks to the ongoing Covid-19 vaccination programs.
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In addition, massive financial support continues to flood the financial markets. Most policymakers at the major central banks have consistently brushed aside inflation concerns, with the Federal Reserve and European Central Bank among others running their asset purchase programs at full throttle.
Knowing that central banks are turning their backs, investors have little incentive to turn bearish towards stocks, with momentum-hunting traders eager to buy back any short-term dip to support.
In Europe, investors are also piling on equities, as the ECB is still one of the most moderate central banks. Unsurprisingly, the German has been one of the strongest European indices as it has repeatedly climbed to new record highs in recent times. And judging by Thursday's price action, the potential is poised to hit yet another high soon.
According to the daily chart, the DAX has been retreating for a few days while consolidating its recent gains. But on Thursday, the German index created a major bullish signal as it formed a hammer-like candle on the daily timeframe. Buyers stepped in to defend a crucial level around 15,350, which had served as both support and resistance in recent weeks.
The hammer candle often precedes profits in an upward trend, as it clearly indicates a reversal from past sell to buy pressures. The fact that this hammer was formed around the still-rising 21-day exponential moving average makes it even more compelling. This particular moving average is often used as an important technical tool by trend followers as it objectively reflects short-term directional bias.
On this occasion we have also seen an outbreak of the hourly bull flag pattern. This is another bullish signal as it indicates that after a period of consolidation, the market is now ready to make further gains as selling pressure remains low.
From here are the following bullish targets: (1) 15,540, last week's high, followed by (2) 16,600, all-time high. Subsequent bullish targets could be the Fibonacci expansion levels shown on the chart.
There is little point in discussing bearish targets, since selling in a rising market is only a good idea when the tide turns. We will cross that bridge when we get there, but for now the DAX remains clearly on an uptrend and so for traders buying the dips – even at these levels – it makes more sense than looking for shorting opportunities in the face of resistance.
