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DAX 30: Rallying Ahead of ‘Brexit’ Results, a Look at the Big Picture

DAX 30: Rallying Ahead of ‘Brexit’ Results, a Look at the Big Picture

2016-06-23 08:54:00
Paul Robinson, Strategist
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What’s inside:

  • The voting has begun
  • The DAX has joined the UK markets in placing its vote
  • A look at the big picture landscape, keeping things in perspective

The time is finally upon us. Is the UK to remain or to leave? As we wrote yesterday regarding the FTSE 100 and the British Pound, the market has cast its vote – remain. Other major European indices have joined in on the rally as well, altering our charts significantly.

The polls indicated a too-close-to-call scenario (roughly split), while odds makers (~25% ‘leave’), options pricing as complied by Bloomberg (~20% ‘leave’), and stock prices indicated a much higher likelihood of the UK remaining in the EU.

The outsized rallies in European indices, especially the FTSE of course, are setting the market up for disappointment. A ‘stay’ vote doesn’t seemingly leave much more upside at this point as this outcome has been effectively priced in. However, a ‘leave’ vote, which holds sharp down-side risk regardless of how the market is positioned, now poses even more risk as complacency has set in.

We aren’t here to predict the outcome, although being a ‘market watcher’ the inclination is that the market has it right. But in any event, standing aside until we know the outcome suits us just fine. There will be plenty of volatility on the other side of this which will present us with opportunities to make sound trades.

For a detailed view on the voting time-line, check out this piece – Brexit Referendum Time-line: When Will Districts Report Results?

Taking a quick look at a couple of charts of the DAX: Our once neatly postured ‘head-and-shoulders’ pattern is morphing into something a bit sloppier, and on the verge of changing shape even more in the days ahead.

Keeping the big picture in perspective; barring a massive rally beyond the April 21 peak at 10486 and the upper parallel running down off the April 2015 peak, the down-trend dating back to the 2015 highs remains intact (could be a massive bull-flag building on the weekly, but a low probability scenario at this time).

As long as the DAX fails to move above the May high and rolls over, there will still remain a series of lower highs and lower lows unfolding since the April top, resembling a rounding pattern. There is plenty of resistance for the DAX to contend with between current prices and ~10300.

Once we move past the vote we can make further assessments and go from there.

DAX Daily[Weekly]

DAX 30: Rallying Ahead of ‘Brexit’ Results, a Look at the Big Picture

---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.

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