Retail traders not buying the DAX’s breakout to record highs…yet

There’s a technical trader I know who often takes to social media with the tongue-in-cheek reminder that “record highs are NOT features of downtrends.” The implication, of course, is that traders should focus on buying markets in uptrends, and one of the best ways to identify candidates in uptrends is to look at the markets making record highs.

Perhaps some of our DAX traders could do with that reminder!

Germany’s benchmark DAX (Germany 40) index closed at a record high for the fourth consecutive day, confirming its uptrend off the March 2020 lows. Despite this very clear evidence that German stocks are in an uptrend, StoneX Retail traders are upping their bets against the index. After hovering in the 20-25% long range through last week, just 19% of StoneX Retail traders with an open position on the DAX are long the index; in other words, over 80% of the outstanding volume is on the short side, despite the ongoing rally into record higher territory.

This divergence between price action and trader positioning will be critical to monitor in the coming days. Will retail traders be forced to close their bearish positions if prices continue to rise…in turn contributing to a short squeeze that drives prices yet higher?

…Or are our traders right to be skeptical? After all, the index’s total gain over the last four days is just about 0.7%, hardly the type of violent “melt up” that would spook bears or spark FOMO. In fact, the lackluster performance since breaking out to record highs at the start of the month could be a sign that there’s little buying demand at these lofty levels and that we may be seeing a “false breakout” in the DAX:

Source: TradingView, StoneX

With little in the way of top-tier economic data out of Germany (and the Eurozone as a whole) this week, the focus will remain on price action and positioning. A break back below the key 16,000 level, especially if foreshadowed by a breakdown in the 14-day RSI indicator as well, would point toward vindication for bearish retail traders and a likely retracement back to the mid-15,000s.

On the other hand, the longer the DAX holds near record territory, the greater the risk that shorts will be forced to throw in the proverbial towel.After all, as we noted at the start of this article, the DAX is clearly NOT in a downtrend, and the passage of time tends to favor those positioned in the direction of the dominant trend!

How to trade with City Index

You can trade easily trade with City Index by using these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the company you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.