The DAX Cracks, Intermediate-term Turns Negative
- DAX breaking important support
- Late week sell-off triggers bearish technical pattern
- Bias has clearly shifted lower, with potential for a lot lower
On Thursday morning we took a look at the DAX and the short-term support levels (10100/9925) it had in place, along with a potential triangle pattern which could develop in the coming weeks should it hold those levels. But just like that both developments taken off the table. Short-term levels failed to hold and the market is no longer on its way to carving out the broader triangle we had originally thought possible. The sharp break between then and now has brought to light a whole other pattern we figured we might have a little more time before needing to discuss.
Friday’s drop of over 2.5% pushed the DAX into a significant area of support between 9815 and 9730; this area represents multiple bottoms in May. Today in early trade the market is breaking this important zone of support. We will need to see how that plays out through the day's end.
The pattern we need to discuss is the ole head-and-shoulders formation. From a longer-term standpoint its development within the context of a downward trend off the April 2015 high could make it especially important. Technically speaking, it triggered on Friday (daily close below the neck-line). However, before the DAX can gain momentum to the down-side it needs to clear the support from last month on a daily closing bar basis. If it does so, then the next area of support is in the mid-9400s around the April low, with a broader support zone extending down into the 9200s. The height of the H&S pattern dictates a price target of close to 9000, at which point we may as well focus on the Feb lows where actual price level exist close to 8700, or worse (worse is what the 14-month trend suggests). And why not? Other major global stock markets don’t look so hot, and hold similar downtrends. The U.S. is faring the best right now, but reasons for concern are brewing there now, too.
Getting back to the short-term: A turnaround could happen today, thus holding onto support on a daily closing basis, but a close below will quickly turn our attention towards mid-9400s and lower.
DAX (Ger30) Daily
---Written by Paul Robinson, Market Analyst
You can follow Paul on Twitter at @PaulRobinsonFX
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.