The DAX 30 (FXCM: GER30) has risen 3.05% this morning and may continue to rise over the next few days as short-sellers get squeezed out of their positions.

The cause of the latest rally has likely been the oversold conditions present at the end of last week, which triggered profit taking by short-sellers and U.S. Retail Sales Control Group rising by 0.6% in January from negative 0.3% in December. The latter suggests that the U.S. economy is holding up better than expected by financial markets and the Atlanta Fed GDPNow model predicts a 2.7 percent real GDP growth (SAAR) for the first quarter of 2016. Such would be a welcome bounce given the soft fourth quarter reading of 0.7% and it may also suggest that the financial markets are too gloomy for their own good.

Over the next few months, I would still expect the negative news to dominate the trend seen by the DAX 30, but in the short-term it is ‘risk-on’ and I expect the DAX to be supported over the coming days.

Technical Outlook

The DAX 30 has corrected to its breakdown level of 9260 seen last Monday, which makes the DAX 30 short-term overbought. However, I still expect higher prices after a pullback to the 9042 to 9000 range, with price ultimately potentially reaching the February 5 high of 9478 as long as the index trades above 8845 (my short-term trend defining level). I think traders will most likely wait for a pullback before turning bullish as a good risk/reward ratio is important as outlined in the Traits of Successful Traders Guide.

DAX 30 | FXCM: GER30