DAX: Upon a Busy Intersection, How it Reacts Could Be Important Long-term
- DAX continues to trade higher through and into more resistance
- Big picture potential outlined
- A pullback looks reasonable off intersection of resistance, but how it responds after is very important longer-term
Yesterday, we noted momentum in the DAX as weakening into a zone of resistance, but thus far despite the rally not holding a great deal of power the index continues to head for higher ground. The zone we had penciled in lies in the 10250/350 vicinity. This area consists of a trend-line off the April highs (currently trading above), peaks from May and June, as well as the back-side retest of the 2011 trend-line. Now that the DAX is threatening to move to the upper-bounds of the noted zone, another point of trend resistance needs to be addressed – the trend-line off the 2015 highs. The intersection is getting pretty busy...
DAX (Ger30) Daily: Dec '15 to Present
With the current advance moving towards the 2015 trend-line, a longer-term pattern could be triggering – an inverse head-and-shoulders pattern with a bull-flag on the verge of breaking out (depends on how you view it).
The top-side trend-line off the 2015 record highs and the 2011 trend-line which the DAX has traded beneath for most of 2016 are currently at the forefront of our minds. The two are interesting which makes for a very pivotal point.
If the DAX can’t clear above the two of them and turns back lower, then the downtrend off the 2015 highs remains in place for now and the inverse H&S/bull-flag scenarios are on hold at best, off the table at worst. However, if the DAX in the coming weeks can move through the intersection unscathed, then the prospects of seeing a continued advance in line with the previously mentioned inverse H&S formation/bull-flag becomes greatly enhanced.
Weekly: 2008 to Present
Getting back to the daily chart, the confluence of resistance suggests a decline off these levels in the short-run is a probable scenario. However, if the DAX can clear above and take out the April high at 10486 at some point, then a much more significant move to the upside could be underway.
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---Written by Paul Robinson, Market Analyst
You can follow Paul on Twitter at @PaulRobinsonFX.
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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.