Warning, hot! Don’t burn your fingers on the DAX.

Last Updated: 12. Dezember 2023By

The German DAX index has been performing smoothly: almost every day the index reaches a new all-time high. While most US indices have cooled off and only increased slightly in recent times, the DAX has been rocketing ever higher. The first new all-time high was reached last Tuesday and further all-time highs followed on Wednesday, Friday, and yesterday.

When an index rises quickly and massively, many investors become eager to invest heavily and not miss out on the great rally. However, there are good reasons to be cautious when making new investments now. All overbought indicators are currently red. The DAX has gained around 15 percent since the end of October, which is a lot for a major stock index in such a short time. No index or stock can keep rising without intermediate corrections. There are many overbought indicators – all of them are now in the red for the DAX.

When assessing whether a stock is overbought, I look at the distance of a value from its average of the last 50 trading days, as every value eventually returns to this 50-day line. For the DAX, this distance is now over 8 percent. These are values that are normally only reached by very volatile stocks. For indices, they are very rare. The DAX has only been this far away from the 50-day line twice since early 2016 – once during the countermovement after the Corona crash and once during the grand rally last autumn.

Legendary stock market guru André Kostolany once said: „Never run after a tram or a stock. Just be patient: the next one will come for sure. There are some gems that apply in every market situation. Yesterday I recommended a new issue to my readers that rose directly upwards.

Just one thing you shouldn’t do now: blindly buy any DAX values after the DAX’s magnificent rise. Otherwise you may quickly burn your fingers and get caught up in a correction.