The DAX Index experienced a three-swing rally from its low on November 21, 2025, achieving a new all-time high. According to Elliott Wave Theory, trends usually consist of five waves rather than three, indicating ongoing bullish momentum.
From the November low, wave 1 concluded at 24,474.62, followed by a corrective wave 2 ending at 23,923.96. This pullback developed into a zigzag pattern, with wave ((a)) finishing at 24,173.28, wave ((b)) at 24,318.30, and wave ((c)) at 23,927.96, marking the conclusion of wave 2.
Wave Progression
Subsequently, the index progressed higher in wave 3. Post wave 2, wave ((i)) settled at 24,356.11 and wave ((ii)) retraced to 24,203.37. A strong wave ((iii)) propelled prices to 25,428.43, with wave ((iv)) modestly adjusting to 25,338.30, followed by wave ((v)) reaching 25,507.79, completing wave 3.
Currently, a corrective wave 4 is in progress, adjusting the cycle since the December 18, 2025 low. As long as the support at 23,927.96 holds, the phase will likely stabilise, potentially developing into a three, seven, or eleven-swing pattern. This sets the stage for further upward movement.
We are seeing the DAX in a corrective phase after its strong rally to a new all-time high of 25,507.79 late last year. This pullback is considered a temporary pause before the next major upward move. Recent economic data, such as the January ZEW Economic Sentiment survey for Germany which came in at a modestly improved 14.5, supports the view of a market consolidating rather than reversing.
The most important level for us to watch in the coming days is the 23,927.96 mark, which was the low point back in early December 2025. As long as the index remains above this pivotal support, the underlying bullish structure is intact. This dip should therefore be viewed as a buying opportunity, not a reason for panic.
Strategies for Traders
For derivative traders, this suggests a strategy of preparing for the next leg up. We could look at buying call options with strike prices above the recent peak, such as 25,600, with expiration dates in March or April 2026. This provides enough time for the current corrective wave to find a bottom and for the anticipated fifth wave rally to begin.
Another approach is to use options to bet on support holding firm. Selling out-of-the-money put credit spreads with a short strike below the key 23,927.96 level could be an effective way to collect premium. This strategy profits from both a rise in the index and time decay, as long as the critical support is not breached.
Historically, pullbacks of 3-5% are common and healthy during strong bull markets like the one we saw in the final quarter of 2025. The current decline from the peak fits within this normal range, reinforcing the idea that the primary trend remains upward. The European Central Bank holding rates steady also provides a stable macroeconomic backdrop for equities to resume their climb once this consolidation is complete.
