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Chart of the day: DAX erases 2020 gains and pauses at multi-month support. Where to from here?

The DAX (Ger30) erased its yearly gains in yesterday’s trading and settled at multi-month support where investors paused to consider further economic fallout.

The coronavirus (CoVID-19) has reached Europe, where Italy has confirmed 200 cases and quarantined 50,000 people near Milan.

DAX (Ger30) daily chart

The Ger30 found support at the 13000 handle after gapping lower on the Monday open and sliding almost 500 points as Italy confirmed numerous cases of CoVID-19. The virus reaching Italy raises concern that it could spread across the continent due to freedom of movement in the European Union.

Better than expected data out of Germany yesterday provided no relief to the index when IFO Expectations and Business Climate data printed a touch above estimates.

So where to from here? Does the 13000 handle hold once again? Or does the Ger30 push lower this time? If long and counting on the index bouncing off support, there seems an obvious place to cut and even reverse into shorts. Another bad news day in Europe and the Ger30 goes south.

Italy’s containment of the virus will be key here. Cases so far have been confirmed only in small towns and not big centers, minimising the chances of a large outbreak. Perhaps that’s contributing to the relative calm in early Asian trading today as investors wait for the next wave of headlines to hit the sell button.

The Ger30 is your trade on sentiment in wider Europe: if the virus crosses borders, the German index will express the panic with some sharp selling off.

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