Don't Overlook the DAX ETF

The Recon Capital DAX Germany ETF (NasdaqGM: DAX) may be overlooked compared to other Germany exchange traded funds trading in the U.S., but with correlations between German and U.S. equities often tight, investors may want to give DAX a fresh look.

With its heavy tilt toward large, multi-national companies, the DAX index benefited earlier this year from a depreciating euro currency. A weaker euro would help support export growth and potentially generate greater revenue from overseas operations for the multi-nationals. DAX, the ETF, is the only U.S.-listed ETF that is a pure DAX index tracking fund. [A Rush to Europe ETFs]

The chart featured at the end of this article “highlights that the DAX hit rising channel resistance in April of this year. As the DAX was hitting this resistance line, guess what the NYSE Advance/Decline did at the same time? It peak and started moving lower, diverging against the S&P 500 for a few months, sending a concerning signal to the S&P 500 and other indices in the states,” notes Chris Kimble of Kimble Charting Solutions.

August was the worst month if several years for European equities, but punishment has made valuations more compelling. BlackRock believes the selling pressure may have been excessive, especially since most leading European indicators point to continued economic expansion. All the recent selling did was restored value to the European market. [Discounts With Europe ETFs]

The DAX, or Deutscher Aktienindex, is comprised of 30 largest and most liquid companies on the German equities market. The companies make up about 80% of Germany’s stock market capitalization. Additionally, each individual component’s weight is capped at 10% of the index.

The index is heavy on industrial, materials, financial services and consumer discretionary stocks, giving German stocks plenty of leverage to the weak euro theme. Germany is the Eurozone’s largest economy and its top exporter.

“The DAX like many other indices created bullish reversal patterns (bullish wicks) at rising channel support last week. I humbly feel that what the DAX does at rising channel support will have a large influence over the S&P 500 in the next few weeks,” adds Kimble.

DAX Index

Chart Courtesy: Kimble Charting Solutions

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.