DAX index has crashed for 5 straight days. The worst is yet to come

The DAX index crashed hard for the fifth straight day as recession and rate hike jitters spread in the market. It dropped to a low of €13,485, which was the lowest level since May 12th this year. It has crashed by over 17% from its highest level in 2021.

Recession and rate hikes

The DAX index joined other global indices in a major sell-off on Monday. In Europe, the Stoxx and CAC 40 indices crashed by more than 2%. Similarly, in the United States, the Dow Jones and the Nasdaq 100 futures declined by more than 1%.

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The main catalyst for this sell-off was last Friday’s consumer inflation data from the United States. The numbers revealed that the American consumer price index (CPI) surged to the highest point since December 1981. This increase was better than the median estimate of a drop to 8.1%.

Therefore, with the US inflation surging, and with the unemployment rate close to its record low, investors believe that the Federal Reserve will embrace a more hawkish tone in the coming months. It will start its monthly meeting on Tuesday and deliver its decision on Wednesday.

The DAX index is also crashing after the European Central Bank embraced a more hawkish tone last week. It left interest rates unchanged and hinted that it will start hiking in July. After learning from the Fed’s mistakes, analysts believe that the ECB will also embrace a more aggressive policy. 

Meanwhile, there are concerns that many German companies could reduce their output because of the rising natural gas prices. That’s because companies in the automobile, steel, and fertilizer industries have grown to rely on the cheap Russian gas. 

The worst performers in the DAX index are companies like Infineon, Delivery Hero, Sartorius, Porsche, Hello Fresh, and Volkswagen. All these shares have crashed by more than 5%. On the other hand, the best performers in DAX 40 are Brenntag, Bayer, BASF, and Munich Re. 

DAX index forecast

The daily chart shows that the DAX 40 index formed a descending double-top pattern that is shown in black. In price action analysis, this pattern is usually a bearish sign. The price is also slightly above the chin of this double-top pattern. 

The German DAX has also managed to move below the 25-day and 50-day moving averages while the Relative Strength Index (RSI) has dropped to the oversold level. Therefore, the outlook for the DAX index is bearish. A drop below the support will see it crash to the next key support at €13,000.

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