Market is a discounting mechanism.

So when stock prices took a big dive late last year, collectively investors are probably expecting a rough patch in the economic expansion. The German Dax Index, for example, collapsed by nearly a quarter (-24%) in 2018. And these negative expectations are slowly materialising. For instance, this week saw the German Industrial Production figure slump by 1.9% during Oct-Nov’18 and that the country’s 3Q’18 GDP contracted. This bodes ill for the Eurozone economic picture.

However, the Dax Index remained firm on these economic figures – simply because much of the negativity are already priced in. In fact, the index rose.

Therefore, with a general market rebound underway, I would expect the index to remain near-term steady. Any better-than-expected news flow might cause investors to buy, as investors are discounting overly negative developments. Dax’s near-term trading range is at 10,000 to 11,000 where a minor base is expected to develop at around here.


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