The main index of the German stock exchange has been subject to a remarkable upward trend for over a year. During the period, the performance is impressive as the Dax gained about 40%. Few short term hesitations occur and investors took very low profits while the Bundesbank has significantly lowered its growth forecast for next year. However, the current optimism of investors seems almost unshakable at the end of 2012.

The gloomy outlook announced by the German central bank urges investors to be more cautious in the short term while the DAX flirts again with a significant area of technical resistance around 7500/7600 Points. Thus, the Bundesbank said that the German economy is expected to slow significantly next year. According to the latest semi-annual outlook report, the German GDP is expected to increase by only 0.4% next year (0.5% adjusted for calendar effects) against an expectation of 1.6% released earlier this year. The economy grew 0.7% in 2012 (0.9% adjusted for calendar effects). Firms reduce their investments and hire fewer new employees. The main obstacles are not only recessions in some countries of the euro area, but also the slowdown of the global economy.

Nevertheless, Germany remains the bright spot of the euro area. Even if growth is low, it remains positive and the government already submitted consolidated public finance and a balanced budget this year. The bund is seen as a quality asset and the government continues to finance at very low rates in bond markets. Arbitrations to German equities are quite logical in the euro area. The main German companies continue to improve and they are already preparing for possible hard times by readjusting gradually their margins. Companies have launched a wave of measures to remain stronger and competitive in times of crisis in Europe. These plans are likely to strengthen the optimism of buyers and the German economy and its businesses.

Technically, the dynamic remains bullish in weekly data above the area of 7200 points which also refers to the 20-week moving average. A consolidation at these levels could allow buyers to readjust position to target a new test of the 7550/7600 points major resistance. We prefer to remain flat until a weekly break above this level to take new long positions as it could release a strong upside potential with the 8000/8100 points target. Conversely, a break below of the 7200 points level invalidate this scenario. We can trade this bullish break using the DAX futures contract (code: DAXXXXX) on the futures market.